Correlation Between Summit Therapeutics and Biocardia

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

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

Diversification Opportunities for Summit Therapeutics and Biocardia

0.21

Correlation Coefficient

Summit Therapeutics  Biocardia

Modest diversification

The 3 months correlation between Summit and Biocardia is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Summit Therapeutics PLC and Biocardia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biocardia and Summit Therapeutics 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 Summit Therapeutics PLC are associated (or correlated) with Biocardia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biocardia has no effect on the direction of Summit Therapeutics i.e., Summit Therapeutics and Biocardia go up and down completely randomly.

Pair Corralation between Summit Therapeutics and Biocardia

Given the investment horizon of 90 days Summit Therapeutics is expected to generate 1.63 times less return on investment than Biocardia. But when comparing it to its historical volatility, Summit Therapeutics PLC is 1.01 times less risky than Biocardia. It trades about 0.04 of its potential returns per unit of risk. Biocardia is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  232.00  in Biocardia on December 26, 2024 and sell it today you would earn a total of  31.00  from holding Biocardia or generate 13.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Summit Therapeutics PLC  vs.  Biocardia

Summit Therapeutics PLC

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Therapeutics PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, Summit Therapeutics unveiled solid returns over the last few months and may actually be approaching a breakup point.

Biocardia

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Biocardia are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, Biocardia sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Summit Therapeutics and Biocardia

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

The idea behind Summit Therapeutics PLC and Biocardia 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.