Correlation Between Revolution Medicines and Stoke Therapeutics

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

Diversification Opportunities for Revolution Medicines and Stoke Therapeutics

-0.44

Correlation Coefficient

Revolution Medicines  Stoke Therapeutics

Very good diversification

The 3 months correlation between Revolution and Stoke is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Revolution Medicines and Stoke Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stoke 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 Stoke Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stoke Therapeutics has no effect on the direction of Revolution Medicines i.e., Revolution Medicines and Stoke Therapeutics go up and down completely randomly.

Pair Corralation between Revolution Medicines and Stoke Therapeutics

Given the investment horizon of 90 days Revolution Medicines is expected to generate 0.69 times more return on investment than Stoke Therapeutics. However, Revolution Medicines is 1.44 times less risky than Stoke Therapeutics. It trades about 0.21 of its potential returns per unit of risk. Stoke Therapeutics is currently generating about -0.07 per unit of risk. If you would invest  4,263  in Revolution Medicines on August 30, 2024 and sell it today you would earn a total of  1,595  from holding Revolution Medicines or generate 37.41% return on investment over 90 days.

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

Revolution Medicines  vs.  Stoke Therapeutics

Revolution Medicines

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Revolution Medicines are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Revolution Medicines exhibited solid returns over the last few months and may actually be approaching a breakup point.

Stoke Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stoke Therapeutics 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 quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Revolution Medicines and Stoke Therapeutics

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

The idea behind Revolution Medicines and Stoke 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.