Correlation Between Verona Pharma and Viking Therapeutics

Can any of the company-specific risk be diversified away by investing in both Verona Pharma and Viking 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 Verona Pharma and Viking Therapeutics 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 Viking Therapeutics, you can compare the effects of market volatilities on Verona Pharma and Viking 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 Verona Pharma with a short position of Viking Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verona Pharma and Viking Therapeutics.

Diversification Opportunities for Verona Pharma and Viking Therapeutics

-0.58

Correlation Coefficient

Verona Pharma  Viking Therapeutics

Excellent diversification

The 3 months correlation between Verona and Viking is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Verona Pharma PLC and Viking Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Viking Therapeutics 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 Viking Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Viking Therapeutics has no effect on the direction of Verona Pharma i.e., Verona Pharma and Viking Therapeutics go up and down completely randomly.

Pair Corralation between Verona Pharma and Viking Therapeutics

Given the investment horizon of 90 days Verona Pharma is expected to generate 3.55 times less return on investment than Viking Therapeutics. But when comparing it to its historical volatility, Verona Pharma PLC is 2.36 times less risky than Viking Therapeutics. It trades about 0.05 of its potential returns per unit of risk. Viking Therapeutics is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  811.00  in Viking Therapeutics on September 16, 2024 and sell it today you would earn a total of  3,892  from holding Viking Therapeutics or generate 479.9% return on investment over 90 days.

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

Verona Pharma PLC  vs.  Viking Therapeutics

Verona Pharma PLC

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Verona Pharma PLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Verona Pharma sustained solid returns over the last few months and may actually be approaching a breakup point.

Viking Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Viking Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Verona Pharma and Viking Therapeutics

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

The idea behind Verona Pharma PLC and Viking 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.