Correlation Between Verona Pharma and Acasti Pharma

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

Diversification Opportunities for Verona Pharma and Acasti Pharma

0.81

Correlation Coefficient

Verona Pharma  Acasti Pharma

Very poor diversification

The 3 months correlation between Verona and Acasti is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Verona Pharma PLC and Acasti Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acasti Pharma 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 Acasti Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Acasti Pharma has no effect on the direction of Verona Pharma i.e., Verona Pharma and Acasti Pharma go up and down completely randomly.

Pair Corralation between Verona Pharma and Acasti Pharma

Given the investment horizon of 90 days Verona Pharma PLC is expected to under-perform the Acasti Pharma. In addition to that, Verona Pharma is 1.28 times more volatile than Acasti Pharma. It trades about -0.37 of its total potential returns per unit of risk. Acasti Pharma is currently generating about -0.17 per unit of volatility. If you would invest  295.00  in Acasti Pharma on March 5, 2024 and sell it today you would lose (22.00) from holding Acasti Pharma or give up 7.46% of portfolio value over 90 days.

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

Verona Pharma PLC  vs.  Acasti Pharma

Verona Pharma PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verona Pharma PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Acasti Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Acasti Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in July 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Verona Pharma and Acasti Pharma

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

The idea behind Verona Pharma PLC and Acasti Pharma 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.