Correlation Between Terns Pharmaceuticals and Nuvalent

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

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

Diversification Opportunities for Terns Pharmaceuticals and Nuvalent

0.28

Correlation Coefficient

Terns Pharmaceuticals  Nuvalent

Modest diversification

The 3 months correlation between Terns and Nuvalent is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Terns Pharmaceuticals and Nuvalent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuvalent 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 Nuvalent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuvalent has no effect on the direction of Terns Pharmaceuticals i.e., Terns Pharmaceuticals and Nuvalent go up and down completely randomly.

Pair Corralation between Terns Pharmaceuticals and Nuvalent

Given the investment horizon of 90 days Terns Pharmaceuticals is expected to under-perform the Nuvalent. In addition to that, Terns Pharmaceuticals is 1.17 times more volatile than Nuvalent. It trades about -0.02 of its total potential returns per unit of risk. Nuvalent is currently generating about 0.07 per unit of volatility. If you would invest  8,364  in Nuvalent on September 2, 2024 and sell it today you would earn a total of  1,304  from holding Nuvalent or generate 15.59% return on investment over 90 days.

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

Terns Pharmaceuticals  vs.  Nuvalent

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 latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Nuvalent

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with Terns Pharmaceuticals and Nuvalent

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

The idea behind Terns Pharmaceuticals and Nuvalent 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.