Correlation Between Royalty Pharma and Ikena Oncology

Can any of the company-specific risk be diversified away by investing in both Royalty Pharma and Ikena Oncology 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 Ikena Oncology 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 Ikena Oncology, you can compare the effects of market volatilities on Royalty Pharma and Ikena Oncology 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 Ikena Oncology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royalty Pharma and Ikena Oncology.

Diversification Opportunities for Royalty Pharma and Ikena Oncology

-0.29

Correlation Coefficient

Royalty Pharma  Ikena Oncology

Very good diversification

The 3 months correlation between Royalty and Ikena is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Royalty Pharma Plc and Ikena Oncology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ikena Oncology 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 Ikena Oncology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ikena Oncology has no effect on the direction of Royalty Pharma i.e., Royalty Pharma and Ikena Oncology go up and down completely randomly.

Pair Corralation between Royalty Pharma and Ikena Oncology

Given the investment horizon of 90 days Royalty Pharma Plc is expected to under-perform the Ikena Oncology. But the stock apears to be less risky and, when comparing its historical volatility, Royalty Pharma Plc is 1.2 times less risky than Ikena Oncology. The stock trades about -0.12 of its potential returns per unit of risk. The Ikena Oncology is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  171.00  in Ikena Oncology on August 30, 2024 and sell it today you would lose (2.00) from holding Ikena Oncology or give up 1.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Royalty Pharma Plc  vs.  Ikena Oncology

Royalty Pharma Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royalty Pharma Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Ikena Oncology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ikena Oncology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Ikena Oncology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Royalty Pharma and Ikena Oncology

The main advantage of trading using opposite Royalty Pharma and Ikena Oncology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royalty Pharma position performs unexpectedly, Ikena Oncology 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 Ikena Oncology will offset losses from the drop in Ikena Oncology's long position.

The idea behind Royalty Pharma Plc and Ikena Oncology 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.

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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.