Correlation Between Verastem and Verona Pharma

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

By analyzing existing cross correlation between Verastem and Verona Pharma PLC, you can compare the effects of market volatilities on Verastem and Verona Pharma 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 Verona Pharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verastem and Verona Pharma.

Diversification Opportunities for Verastem and Verona Pharma

0.67

Correlation Coefficient

Verastem  Verona Pharma

Poor diversification

The 3 months correlation between Verastem and Verona is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Verastem and Verona Pharma PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verona Pharma PLC 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 Verona Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verona Pharma PLC has no effect on the direction of Verastem i.e., Verastem and Verona Pharma go up and down completely randomly.

Pair Corralation between Verastem and Verona Pharma

Given the investment horizon of 90 days Verastem is expected to generate 2.77 times more return on investment than Verona Pharma. However, Verastem is 2.77 times more volatile than Verona Pharma PLC. It trades about 0.13 of its potential returns per unit of risk. Verona Pharma PLC is currently generating about 0.29 per unit of risk. If you would invest  444.00  in Verastem on October 20, 2024 and sell it today you would earn a total of  89.00  from holding Verastem or generate 20.05% return on investment over 90 days.

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

Verastem  vs.  Verona Pharma PLC

Verastem

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Verastem are ranked lower than 9 (%) 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.

Verona Pharma PLC

Risk-Adjusted Performance

16 of 100

Solid

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 weak basic indicators, Verona Pharma sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Verastem and Verona Pharma

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

The idea behind Verastem and Verona Pharma PLC 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.