Correlation Between Verrica Pharmaceuticals and Vanda Pharmaceuticals

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

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

Diversification Opportunities for Verrica Pharmaceuticals and Vanda Pharmaceuticals

-0.46

Correlation Coefficient

Verrica Pharmaceuticals  Vanda Pharmaceuticals

Very good diversification

The 3 months correlation between Verrica and Vanda is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Verrica Pharmaceuticals and Vanda Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanda Pharmaceuticals 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 Vanda Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanda Pharmaceuticals has no effect on the direction of Verrica Pharmaceuticals i.e., Verrica Pharmaceuticals and Vanda Pharmaceuticals go up and down completely randomly.

Pair Corralation between Verrica Pharmaceuticals and Vanda Pharmaceuticals

Given the investment horizon of 90 days Verrica Pharmaceuticals is expected to under-perform the Vanda Pharmaceuticals. In addition to that, Verrica Pharmaceuticals is 2.32 times more volatile than Vanda Pharmaceuticals. It trades about -0.1 of its total potential returns per unit of risk. Vanda Pharmaceuticals is currently generating about 0.01 per unit of volatility. If you would invest  481.00  in Vanda Pharmaceuticals on December 27, 2024 and sell it today you would lose (4.00) from holding Vanda Pharmaceuticals or give up 0.83% of portfolio value over 90 days.

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

Verrica Pharmaceuticals  vs.  Vanda Pharmaceuticals

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.

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.

Pair Trading with Verrica Pharmaceuticals and Vanda Pharmaceuticals

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

The idea behind Verrica Pharmaceuticals and Vanda Pharmaceuticals 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.