Correlation Between Royalty Pharma and Intellia Therapeutics

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

Diversification Opportunities for Royalty Pharma and Intellia Therapeutics

0.84

Correlation Coefficient

Royalty Pharma  Intellia Therapeutics

Very poor diversification

The 3 months correlation between Royalty and Intellia is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Royalty Pharma Plc and Intellia Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intellia 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 Intellia Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intellia Therapeutics has no effect on the direction of Royalty Pharma i.e., Royalty Pharma and Intellia Therapeutics go up and down completely randomly.

Pair Corralation between Royalty Pharma and Intellia Therapeutics

Given the investment horizon of 90 days Royalty Pharma Plc is expected to generate 0.38 times more return on investment than Intellia Therapeutics. However, Royalty Pharma Plc is 2.65 times less risky than Intellia Therapeutics. It trades about -0.04 of its potential returns per unit of risk. Intellia Therapeutics is currently generating about -0.06 per unit of risk. If you would invest  3,316  in Royalty Pharma Plc on September 25, 2024 and sell it today you would lose (824.00) from holding Royalty Pharma Plc or give up 24.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.76%
Values	Daily Returns

Royalty Pharma Plc  vs.  Intellia Therapeutics

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.

Intellia Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Intellia Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Royalty Pharma and Intellia Therapeutics

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

The idea behind Royalty Pharma Plc and Intellia 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.

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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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.