Correlation Between Terns Pharmaceuticals and Vaxcyte

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

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

Diversification Opportunities for Terns Pharmaceuticals and Vaxcyte

0.45

Correlation Coefficient

Terns Pharmaceuticals  Vaxcyte

Very weak diversification

The 3 months correlation between Terns and Vaxcyte is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Terns Pharmaceuticals and Vaxcyte in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vaxcyte and Terns 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 Terns Pharmaceuticals are associated (or correlated) with Vaxcyte. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vaxcyte has no effect on the direction of Terns Pharmaceuticals i.e., Terns Pharmaceuticals and Vaxcyte go up and down completely randomly.

Pair Corralation between Terns Pharmaceuticals and Vaxcyte

Given the investment horizon of 90 days Terns Pharmaceuticals is expected to under-perform the Vaxcyte. In addition to that, Terns Pharmaceuticals is 1.67 times more volatile than Vaxcyte. It trades about -0.38 of its total potential returns per unit of risk. Vaxcyte is currently generating about -0.03 per unit of volatility. If you would invest  11,427  in Vaxcyte on July 30, 2024 and sell it today you would lose (133.00) from holding Vaxcyte or give up 1.16% of portfolio value over 90 days.

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

Terns Pharmaceuticals  vs.  Vaxcyte

Terns Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Terns Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Terns Pharmaceuticals is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Vaxcyte

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vaxcyte are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Vaxcyte showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Terns Pharmaceuticals and Vaxcyte

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

The idea behind Terns Pharmaceuticals and Vaxcyte 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.