Correlation Between Verona Pharma and Viridian Therapeutics

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

Diversification Opportunities for Verona Pharma and Viridian Therapeutics

-0.35

Correlation Coefficient

Verona Pharma  Viridian Therapeutics

Very good diversification

The 3 months correlation between Verona and Viridian is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Verona Pharma PLC and Viridian Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Viridian 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 Viridian Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Viridian Therapeutics has no effect on the direction of Verona Pharma i.e., Verona Pharma and Viridian Therapeutics go up and down completely randomly.

Pair Corralation between Verona Pharma and Viridian Therapeutics

Given the investment horizon of 90 days Verona Pharma PLC is expected to generate 0.83 times more return on investment than Viridian Therapeutics. However, Verona Pharma PLC is 1.2 times less risky than Viridian Therapeutics. It trades about 0.21 of its potential returns per unit of risk. Viridian Therapeutics is currently generating about -0.06 per unit of risk. If you would invest  2,919  in Verona Pharma PLC on September 17, 2024 and sell it today you would earn a total of  1,223  from holding Verona Pharma PLC or generate 41.9% return on investment over 90 days.

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

Verona Pharma PLC  vs.  Viridian Therapeutics

Verona Pharma PLC

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Verona Pharma PLC are ranked lower than 16 (%) 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.

Viridian Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Viridian 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 fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Verona Pharma and Viridian Therapeutics

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

The idea behind Verona Pharma PLC and Viridian 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.