Correlation Between Vanda Pharmaceuticals and Biomarin Pharmaceutical

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

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

Diversification Opportunities for Vanda Pharmaceuticals and Biomarin Pharmaceutical

0.27

Correlation Coefficient

Vanda Pharmaceuticals  Biomarin Pharmaceutical

Modest diversification

The 3 months correlation between Vanda and Biomarin is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Vanda Pharmaceuticals and Biomarin Pharmaceutical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biomarin Pharmaceutical and Vanda 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 Vanda Pharmaceuticals are associated (or correlated) with Biomarin Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biomarin Pharmaceutical has no effect on the direction of Vanda Pharmaceuticals i.e., Vanda Pharmaceuticals and Biomarin Pharmaceutical go up and down completely randomly.

Pair Corralation between Vanda Pharmaceuticals and Biomarin Pharmaceutical

Given the investment horizon of 90 days Vanda Pharmaceuticals is expected to generate 2.06 times more return on investment than Biomarin Pharmaceutical. However, Vanda Pharmaceuticals is 2.06 times more volatile than Biomarin Pharmaceutical. It trades about 0.04 of its potential returns per unit of risk. Biomarin Pharmaceutical is currently generating about -0.03 per unit of risk. If you would invest  382.00  in Vanda Pharmaceuticals on December 2, 2024 and sell it today you would earn a total of  94.00  from holding Vanda Pharmaceuticals or generate 24.61% return on investment over 90 days.

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

Vanda Pharmaceuticals  vs.  Biomarin Pharmaceutical

Vanda Pharmaceuticals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanda Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Vanda Pharmaceuticals is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Biomarin Pharmaceutical

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Biomarin Pharmaceutical are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Biomarin Pharmaceutical may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Vanda Pharmaceuticals and Biomarin Pharmaceutical

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

The idea behind Vanda Pharmaceuticals and Biomarin Pharmaceutical 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.