Correlation Between Revolution Medicines and ADC Therapeutics

Can any of the company-specific risk be diversified away by investing in both Revolution Medicines and ADC 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 Revolution Medicines and ADC Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Revolution Medicines and ADC Therapeutics SA, you can compare the effects of market volatilities on Revolution Medicines and ADC 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 Revolution Medicines with a short position of ADC Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Revolution Medicines and ADC Therapeutics.

Diversification Opportunities for Revolution Medicines and ADC Therapeutics

0.48

Correlation Coefficient

Revolution Medicines  ADC Therapeutics

Very weak diversification

The 3 months correlation between Revolution and ADC is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Revolution Medicines and ADC Therapeutics SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADC Therapeutics and Revolution Medicines 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 Revolution Medicines are associated (or correlated) with ADC Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADC Therapeutics has no effect on the direction of Revolution Medicines i.e., Revolution Medicines and ADC Therapeutics go up and down completely randomly.

Pair Corralation between Revolution Medicines and ADC Therapeutics

Given the investment horizon of 90 days Revolution Medicines is expected to under-perform the ADC Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Revolution Medicines is 4.18 times less risky than ADC Therapeutics. The stock trades about -0.22 of its potential returns per unit of risk. The ADC Therapeutics SA is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  242.00  in ADC Therapeutics SA on November 29, 2024 and sell it today you would lose (80.00) from holding ADC Therapeutics SA or give up 33.06% of portfolio value over 90 days.

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

Revolution Medicines  vs.  ADC Therapeutics SA

Revolution Medicines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Revolution Medicines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

ADC Therapeutics

Risk-Adjusted Performance

Very Weak

Over the last 90 days ADC Therapeutics SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Revolution Medicines and ADC Therapeutics

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

The idea behind Revolution Medicines and ADC Therapeutics SA 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.