Correlation Between Revolution Medicines and Passage Bio

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

By analyzing existing cross correlation between Revolution Medicines and Passage Bio, you can compare the effects of market volatilities on Revolution Medicines and Passage Bio 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 Passage Bio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Revolution Medicines and Passage Bio.

Diversification Opportunities for Revolution Medicines and Passage Bio

0.15

Correlation Coefficient

Revolution Medicines  Passage Bio

Average diversification

The 3 months correlation between Revolution and Passage is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Revolution Medicines and Passage Bio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Passage Bio 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 Passage Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Passage Bio has no effect on the direction of Revolution Medicines i.e., Revolution Medicines and Passage Bio go up and down completely randomly.

Pair Corralation between Revolution Medicines and Passage Bio

Given the investment horizon of 90 days Revolution Medicines is expected to generate 0.33 times more return on investment than Passage Bio. However, Revolution Medicines is 3.06 times less risky than Passage Bio. It trades about -0.22 of its potential returns per unit of risk. Passage Bio is currently generating about -0.13 per unit of risk. If you would invest  5,785  in Revolution Medicines on November 29, 2024 and sell it today you would lose (1,735) from holding Revolution Medicines or give up 29.99% of portfolio value over 90 days.

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

Revolution Medicines  vs.  Passage Bio

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.

Passage Bio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Passage Bio has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Revolution Medicines and Passage Bio

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

The idea behind Revolution Medicines and Passage Bio 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.