Correlation Between Vertex Pharmaceuticals and DiaMedica Therapeutics

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

By analyzing existing cross correlation between Vertex Pharmaceuticals and DiaMedica Therapeutics, you can compare the effects of market volatilities on Vertex Pharmaceuticals and DiaMedica 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 Vertex Pharmaceuticals with a short position of DiaMedica Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vertex Pharmaceuticals and DiaMedica Therapeutics.

Diversification Opportunities for Vertex Pharmaceuticals and DiaMedica Therapeutics

0.34

Correlation Coefficient

Vertex Pharmaceuticals  DiaMedica Therapeutics

Weak diversification

The 3 months correlation between Vertex and DiaMedica is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Vertex Pharmaceuticals and DiaMedica Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DiaMedica Therapeutics and Vertex 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 Vertex Pharmaceuticals are associated (or correlated) with DiaMedica Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DiaMedica Therapeutics has no effect on the direction of Vertex Pharmaceuticals i.e., Vertex Pharmaceuticals and DiaMedica Therapeutics go up and down completely randomly.

Pair Corralation between Vertex Pharmaceuticals and DiaMedica Therapeutics

Given the investment horizon of 90 days Vertex Pharmaceuticals is expected to generate 6.42 times less return on investment than DiaMedica Therapeutics. But when comparing it to its historical volatility, Vertex Pharmaceuticals is 2.53 times less risky than DiaMedica Therapeutics. It trades about 0.03 of its potential returns per unit of risk. DiaMedica Therapeutics is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  534.00  in DiaMedica Therapeutics on December 2, 2024 and sell it today you would earn a total of  119.00  from holding DiaMedica Therapeutics or generate 22.28% return on investment over 90 days.

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

Vertex Pharmaceuticals  vs.  DiaMedica Therapeutics

Vertex Pharmaceuticals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vertex Pharmaceuticals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Vertex Pharmaceuticals is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

DiaMedica Therapeutics

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in DiaMedica Therapeutics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, DiaMedica Therapeutics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vertex Pharmaceuticals and DiaMedica Therapeutics

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

The idea behind Vertex Pharmaceuticals and DiaMedica 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 Commodity Directory module to find actively traded commodities issued by global exchanges.