Correlation Between Royalty Pharma and Beam Therapeutics

Can any of the company-specific risk be diversified away by investing in both Royalty Pharma and Beam Therapeutics at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Royalty Pharma and Beam Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Royalty Pharma Plc and Beam Therapeutics, you can compare the effects of market volatilities on Royalty Pharma and Beam Therapeutics and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Royalty Pharma with a short position of Beam Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royalty Pharma and Beam Therapeutics.

Diversification Opportunities for Royalty Pharma and Beam Therapeutics

0.24

Correlation Coefficient

Royalty Pharma  Beam Therapeutics

Modest diversification

The 3 months correlation between Royalty and Beam is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Royalty Pharma Plc and Beam Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beam Therapeutics and Royalty Pharma is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Royalty Pharma Plc are associated (or correlated) with Beam Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beam Therapeutics has no effect on the direction of Royalty Pharma i.e., Royalty Pharma and Beam Therapeutics go up and down completely randomly.

Pair Corralation between Royalty Pharma and Beam Therapeutics

Given the investment horizon of 90 days Royalty Pharma is expected to generate 2.87 times less return on investment than Beam Therapeutics. But when comparing it to its historical volatility, Royalty Pharma Plc is 5.32 times less risky than Beam Therapeutics. It trades about 0.37 of its potential returns per unit of risk. Beam Therapeutics is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,591  in Beam Therapeutics on November 28, 2024 and sell it today you would earn a total of  488.00  from holding Beam Therapeutics or generate 18.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Royalty Pharma Plc  vs.  Beam Therapeutics

Royalty Pharma Plc

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Royalty Pharma Plc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Royalty Pharma showed solid returns over the last few months and may actually be approaching a breakup point.

Beam Therapeutics

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Beam Therapeutics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Beam Therapeutics displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Royalty Pharma and Beam Therapeutics

The main advantage of trading using opposite Royalty Pharma and Beam Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royalty Pharma position performs unexpectedly, Beam Therapeutics can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Beam Therapeutics will offset losses from the drop in Beam Therapeutics' long position.

The idea behind Royalty Pharma Plc and Beam Therapeutics pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.