Correlation Between Revolution Medicines and Rhythm Pharmaceuticals

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

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

Diversification Opportunities for Revolution Medicines and Rhythm Pharmaceuticals

0.69

Correlation Coefficient

Revolution Medicines  Rhythm Pharmaceuticals

Poor diversification

The 3 months correlation between Revolution and Rhythm is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Revolution Medicines and Rhythm Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rhythm Pharmaceuticals 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 Rhythm Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rhythm Pharmaceuticals has no effect on the direction of Revolution Medicines i.e., Revolution Medicines and Rhythm Pharmaceuticals go up and down completely randomly.

Pair Corralation between Revolution Medicines and Rhythm Pharmaceuticals

Given the investment horizon of 90 days Revolution Medicines is expected to under-perform the Rhythm Pharmaceuticals. In addition to that, Revolution Medicines is 1.18 times more volatile than Rhythm Pharmaceuticals. It trades about -0.21 of its total potential returns per unit of risk. Rhythm Pharmaceuticals is currently generating about -0.03 per unit of volatility. If you would invest  5,936  in Rhythm Pharmaceuticals on November 20, 2024 and sell it today you would lose (267.00) from holding Rhythm Pharmaceuticals or give up 4.5% of portfolio value over 90 days.

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

Revolution Medicines  vs.  Rhythm Pharmaceuticals

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.

Rhythm Pharmaceuticals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rhythm Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Rhythm Pharmaceuticals is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Revolution Medicines and Rhythm Pharmaceuticals

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

The idea behind Revolution Medicines and Rhythm Pharmaceuticals 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.

Check out your portfolio center.

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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.