Correlation Between Sonnet Biotherapeutics and Lexicon Pharmaceuticals

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

By analyzing existing cross correlation between Sonnet Biotherapeutics Holdings and Lexicon Pharmaceuticals, you can compare the effects of market volatilities on Sonnet Biotherapeutics and Lexicon 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 Sonnet Biotherapeutics with a short position of Lexicon Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sonnet Biotherapeutics and Lexicon Pharmaceuticals.

Diversification Opportunities for Sonnet Biotherapeutics and Lexicon Pharmaceuticals

0.71

Correlation Coefficient

Sonnet Biotherapeutics  Lexicon Pharmaceuticals

Poor diversification

The 3 months correlation between Sonnet and Lexicon is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Sonnet Biotherapeutics Holding and Lexicon Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lexicon Pharmaceuticals and Sonnet Biotherapeutics 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 Sonnet Biotherapeutics Holdings are associated (or correlated) with Lexicon Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lexicon Pharmaceuticals has no effect on the direction of Sonnet Biotherapeutics i.e., Sonnet Biotherapeutics and Lexicon Pharmaceuticals go up and down completely randomly.

Pair Corralation between Sonnet Biotherapeutics and Lexicon Pharmaceuticals

Given the investment horizon of 90 days Sonnet Biotherapeutics Holdings is expected to generate 0.59 times more return on investment than Lexicon Pharmaceuticals. However, Sonnet Biotherapeutics Holdings is 1.69 times less risky than Lexicon Pharmaceuticals. It trades about 0.02 of its potential returns per unit of risk. Lexicon Pharmaceuticals is currently generating about -0.09 per unit of risk. If you would invest  144.00  in Sonnet Biotherapeutics Holdings on December 21, 2024 and sell it today you would lose (1.00) from holding Sonnet Biotherapeutics Holdings or give up 0.69% of portfolio value over 90 days.

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

Sonnet Biotherapeutics Holding  vs.  Lexicon Pharmaceuticals

Sonnet Biotherapeutics

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sonnet Biotherapeutics Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Sonnet Biotherapeutics may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Lexicon Pharmaceuticals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lexicon Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Sonnet Biotherapeutics and Lexicon Pharmaceuticals

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

The idea behind Sonnet Biotherapeutics Holdings and Lexicon 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.

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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.