Correlation Between Spero Therapeutics and Nektar Therapeutics

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

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

Diversification Opportunities for Spero Therapeutics and Nektar Therapeutics

0.85

Correlation Coefficient

Spero Therapeutics  Nektar Therapeutics

Very poor diversification

The 3 months correlation between Spero and Nektar is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Spero Therapeutics and Nektar Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nektar Therapeutics and Spero 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 Spero Therapeutics are associated (or correlated) with Nektar Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nektar Therapeutics has no effect on the direction of Spero Therapeutics i.e., Spero Therapeutics and Nektar Therapeutics go up and down completely randomly.

Pair Corralation between Spero Therapeutics and Nektar Therapeutics

Given the investment horizon of 90 days Spero Therapeutics is expected to generate 1.62 times less return on investment than Nektar Therapeutics. But when comparing it to its historical volatility, Spero Therapeutics is 1.13 times less risky than Nektar Therapeutics. It trades about 0.01 of its potential returns per unit of risk. Nektar Therapeutics is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  90.00  in Nektar Therapeutics on October 23, 2024 and sell it today you would lose (1.00) from holding Nektar Therapeutics or give up 1.11% of portfolio value over 90 days.

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

Spero Therapeutics  vs.  Nektar Therapeutics

Spero Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spero Therapeutics 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 very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Nektar Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nektar Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Spero Therapeutics and Nektar Therapeutics

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

The idea behind Spero Therapeutics and Nektar 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.