Correlation Between United Therapeutics and Incyte

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

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

Diversification Opportunities for United Therapeutics and Incyte

0.63

Correlation Coefficient

United Therapeutics  Incyte

Poor diversification

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

Pair Corralation between United Therapeutics and Incyte

Given the investment horizon of 90 days United Therapeutics is expected to under-perform the Incyte. In addition to that, United Therapeutics is 1.05 times more volatile than Incyte. It trades about -0.09 of its total potential returns per unit of risk. Incyte is currently generating about -0.08 per unit of volatility. If you would invest  6,842  in Incyte on December 29, 2024 and sell it today you would lose (782.00) from holding Incyte or give up 11.43% of portfolio value over 90 days.

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

United Therapeutics  vs.  Incyte

United Therapeutics

Risk-Adjusted Performance

Very Weak

Over the last 90 days United 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 technical indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Incyte

Risk-Adjusted Performance

Very Weak

Over the last 90 days Incyte has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with United Therapeutics and Incyte

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

The idea behind United Therapeutics and Incyte 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.