Correlation Between Verona Pharma and Cronos

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

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

Diversification Opportunities for Verona Pharma and Cronos

-0.6

Correlation Coefficient

Verona Pharma  Cronos

Excellent diversification

The 3 months correlation between Verona and Cronos is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Verona Pharma PLC and Cronos Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cronos Group and Verona Pharma 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 Verona Pharma PLC are associated (or correlated) with Cronos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cronos Group has no effect on the direction of Verona Pharma i.e., Verona Pharma and Cronos go up and down completely randomly.

Pair Corralation between Verona Pharma and Cronos

Given the investment horizon of 90 days Verona Pharma PLC is expected to generate 0.89 times more return on investment than Cronos. However, Verona Pharma PLC is 1.13 times less risky than Cronos. It trades about 0.18 of its potential returns per unit of risk. Cronos Group is currently generating about -0.04 per unit of risk. If you would invest  2,999  in Verona Pharma PLC on September 12, 2024 and sell it today you would earn a total of  997.00  from holding Verona Pharma PLC or generate 33.24% return on investment over 90 days.

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

Verona Pharma PLC  vs.  Cronos Group

Verona Pharma PLC

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Verona Pharma PLC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Verona Pharma sustained solid returns over the last few months and may actually be approaching a breakup point.

Cronos Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cronos Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Verona Pharma and Cronos

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

The idea behind Verona Pharma PLC and Cronos Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.