Correlation Between Summit Therapeutics and Toro Energy

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

Diversification Opportunities for Summit Therapeutics and Toro Energy

0.24

Correlation Coefficient

Summit Therapeutics  Toro Energy

Modest diversification

The 3 months correlation between Summit and Toro is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Summit Therapeutics PLC and Toro Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toro Energy Limited 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 Toro Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toro Energy Limited has no effect on the direction of Summit Therapeutics i.e., Summit Therapeutics and Toro Energy go up and down completely randomly.

Pair Corralation between Summit Therapeutics and Toro Energy

Given the investment horizon of 90 days Summit Therapeutics is expected to generate 3.04 times less return on investment than Toro Energy. But when comparing it to its historical volatility, Summit Therapeutics PLC is 3.47 times less risky than Toro Energy. It trades about 0.06 of its potential returns per unit of risk. Toro Energy Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  0.76  in Toro Energy Limited on October 21, 2024 and sell it today you would earn a total of  14.24  from holding Toro Energy Limited or generate 1873.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.52%
Values	Daily Returns

Summit Therapeutics PLC  vs.  Toro Energy Limited

Summit Therapeutics PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Summit Therapeutics PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Summit Therapeutics is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Toro Energy Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toro Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Toro Energy is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Summit Therapeutics and Toro Energy

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

The idea behind Summit Therapeutics PLC and Toro Energy Limited 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.