Correlation Between Terns Pharmaceuticals and Cidara Therapeutics

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

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

Diversification Opportunities for Terns Pharmaceuticals and Cidara Therapeutics

-0.63

Correlation Coefficient

Terns Pharmaceuticals  Cidara Therapeutics

Excellent diversification

The 3 months correlation between Terns and Cidara is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Terns Pharmaceuticals and Cidara Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cidara Therapeutics and Terns Pharmaceuticals 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 Terns Pharmaceuticals are associated (or correlated) with Cidara Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cidara Therapeutics has no effect on the direction of Terns Pharmaceuticals i.e., Terns Pharmaceuticals and Cidara Therapeutics go up and down completely randomly.

Pair Corralation between Terns Pharmaceuticals and Cidara Therapeutics

Given the investment horizon of 90 days Terns Pharmaceuticals is expected to under-perform the Cidara Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Terns Pharmaceuticals is 1.5 times less risky than Cidara Therapeutics. The stock trades about -0.39 of its potential returns per unit of risk. The Cidara Therapeutics is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  2,343  in Cidara Therapeutics on October 25, 2024 and sell it today you would lose (144.00) from holding Cidara Therapeutics or give up 6.15% of portfolio value over 90 days.

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

Terns Pharmaceuticals  vs.  Cidara Therapeutics

Terns Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Terns 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 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.

Cidara Therapeutics

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cidara Therapeutics are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Cidara Therapeutics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Terns Pharmaceuticals and Cidara Therapeutics

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

The idea behind Terns Pharmaceuticals and Cidara 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.