Correlation Between Verastem and Viking Therapeutics

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

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

Diversification Opportunities for Verastem and Viking Therapeutics

-0.23

Correlation Coefficient

Verastem  Viking Therapeutics

Very good diversification

The 3 months correlation between Verastem and Viking is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Verastem and Viking Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Viking Therapeutics and Verastem 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 Verastem 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 Verastem i.e., Verastem and Viking Therapeutics go up and down completely randomly.

Pair Corralation between Verastem and Viking Therapeutics

Given the investment horizon of 90 days Verastem is expected to generate 1.24 times more return on investment than Viking Therapeutics. However, Verastem is 1.24 times more volatile than Viking Therapeutics. It trades about 0.23 of its potential returns per unit of risk. Viking Therapeutics is currently generating about -0.01 per unit of risk. If you would invest  242.00  in Verastem on September 2, 2024 and sell it today you would earn a total of  292.00  from holding Verastem or generate 120.66% return on investment over 90 days.

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

Verastem  vs.  Viking Therapeutics

Verastem

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Verastem are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Verastem displayed 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 fairly strong basic indicators, Viking Therapeutics is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Verastem and Viking Therapeutics

The main advantage of trading using opposite Verastem and Viking Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verastem 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 Verastem 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.