Correlation Between Verrica Pharmaceuticals and Seres Therapeutics

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

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

Diversification Opportunities for Verrica Pharmaceuticals and Seres Therapeutics

0.57

Correlation Coefficient

Verrica Pharmaceuticals  Seres Therapeutics

Very weak diversification

The 3 months correlation between Verrica and Seres is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Verrica Pharmaceuticals and Seres Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seres Therapeutics and Verrica 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 Verrica Pharmaceuticals are associated (or correlated) with Seres Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seres Therapeutics has no effect on the direction of Verrica Pharmaceuticals i.e., Verrica Pharmaceuticals and Seres Therapeutics go up and down completely randomly.

Pair Corralation between Verrica Pharmaceuticals and Seres Therapeutics

Given the investment horizon of 90 days Verrica Pharmaceuticals is expected to under-perform the Seres Therapeutics. In addition to that, Verrica Pharmaceuticals is 1.1 times more volatile than Seres Therapeutics. It trades about -0.11 of its total potential returns per unit of risk. Seres Therapeutics is currently generating about 0.0 per unit of volatility. If you would invest  83.00  in Seres Therapeutics on December 29, 2024 and sell it today you would lose (7.00) from holding Seres Therapeutics or give up 8.43% of portfolio value over 90 days.

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

Verrica Pharmaceuticals  vs.  Seres Therapeutics

Verrica Pharmaceuticals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Verrica Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Seres Therapeutics

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Verrica Pharmaceuticals and Seres Therapeutics

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

The idea behind Verrica Pharmaceuticals and Seres 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.