Correlation Between Verona Pharma and VistaGen Therapeutics

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

Diversification Opportunities for Verona Pharma and VistaGen Therapeutics

-0.63

Correlation Coefficient

Verona Pharma  VistaGen Therapeutics

Excellent diversification

The 3 months correlation between Verona and VistaGen is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Verona Pharma PLC and VistaGen Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VistaGen 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 VistaGen Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VistaGen Therapeutics has no effect on the direction of Verona Pharma i.e., Verona Pharma and VistaGen Therapeutics go up and down completely randomly.

Pair Corralation between Verona Pharma and VistaGen Therapeutics

Given the investment horizon of 90 days Verona Pharma is expected to generate 6.58 times less return on investment than VistaGen Therapeutics. But when comparing it to its historical volatility, Verona Pharma PLC is 9.11 times less risky than VistaGen Therapeutics. It trades about 0.05 of its potential returns per unit of risk. VistaGen Therapeutics is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  285.00  in VistaGen Therapeutics on September 16, 2024 and sell it today you would lose (42.00) from holding VistaGen Therapeutics or give up 14.74% of portfolio value over 90 days.

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

Verona Pharma PLC  vs.  VistaGen 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.

VistaGen Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VistaGen 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 technical and 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 VistaGen Therapeutics

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

The idea behind Verona Pharma PLC and VistaGen 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.

Check out your portfolio center.

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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.