Correlation Between Revolution Medicines and Foghorn Therapeutics

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

Diversification Opportunities for Revolution Medicines and Foghorn Therapeutics

0.37

Correlation Coefficient

Revolution Medicines  Foghorn Therapeutics

Weak diversification

The 3 months correlation between Revolution and Foghorn is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Revolution Medicines and Foghorn Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foghorn 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 Foghorn Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foghorn Therapeutics has no effect on the direction of Revolution Medicines i.e., Revolution Medicines and Foghorn Therapeutics go up and down completely randomly.

Pair Corralation between Revolution Medicines and Foghorn Therapeutics

Given the investment horizon of 90 days Revolution Medicines is expected to generate 0.49 times more return on investment than Foghorn Therapeutics. However, Revolution Medicines is 2.04 times less risky than Foghorn Therapeutics. It trades about -0.08 of its potential returns per unit of risk. Foghorn Therapeutics is currently generating about -0.06 per unit of risk. If you would invest  4,317  in Revolution Medicines on December 30, 2024 and sell it today you would lose (582.00) from holding Revolution Medicines or give up 13.48% of portfolio value over 90 days.

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

Revolution Medicines  vs.  Foghorn Therapeutics

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 April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Foghorn Therapeutics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Foghorn Therapeutics 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 basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Revolution Medicines and Foghorn Therapeutics

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

The idea behind Revolution Medicines and Foghorn 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.