Correlation Between United Therapeutics and Wave Life

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

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

Diversification Opportunities for United Therapeutics and Wave Life

0.7

Correlation Coefficient

United Therapeutics  Wave Life

Poor diversification

The 3 months correlation between United and Wave is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding United Therapeutics and Wave Life Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wave Life Sciences 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 Wave Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wave Life Sciences has no effect on the direction of United Therapeutics i.e., United Therapeutics and Wave Life go up and down completely randomly.

Pair Corralation between United Therapeutics and Wave Life

Given the investment horizon of 90 days United Therapeutics is expected to generate 22.99 times less return on investment than Wave Life. But when comparing it to its historical volatility, United Therapeutics is 7.23 times less risky than Wave Life. It trades about 0.05 of its potential returns per unit of risk. Wave Life Sciences is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  555.00  in Wave Life Sciences on September 2, 2024 and sell it today you would earn a total of  955.00  from holding Wave Life Sciences or generate 172.07% return on investment over 90 days.

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

United Therapeutics  vs.  Wave Life Sciences

United Therapeutics

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United Therapeutics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical indicators, United Therapeutics is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Wave Life Sciences

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wave Life Sciences are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Wave Life exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Therapeutics and Wave Life

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

The idea behind United Therapeutics and Wave Life Sciences 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.