Correlation Between Vertex Pharmaceuticals and Standard Biotools

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

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

Diversification Opportunities for Vertex Pharmaceuticals and Standard Biotools

0.63

Correlation Coefficient

Vertex Pharmaceuticals  Standard Biotools

Poor diversification

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

Pair Corralation between Vertex Pharmaceuticals and Standard Biotools

Given the investment horizon of 90 days Vertex Pharmaceuticals is expected to generate 0.42 times more return on investment than Standard Biotools. However, Vertex Pharmaceuticals is 2.4 times less risky than Standard Biotools. It trades about -0.01 of its potential returns per unit of risk. Standard Biotools is currently generating about -0.01 per unit of risk. If you would invest  47,570  in Vertex Pharmaceuticals on August 31, 2024 and sell it today you would lose (1,114) from holding Vertex Pharmaceuticals or give up 2.34% of portfolio value over 90 days.

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

Vertex Pharmaceuticals  vs.  Standard Biotools

Vertex Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vertex Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Standard Biotools

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Biotools has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Standard Biotools is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vertex Pharmaceuticals and Standard Biotools

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

The idea behind Vertex Pharmaceuticals and Standard Biotools 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.