Correlation Between Verona Pharma and Ventyx Biosciences

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

Diversification Opportunities for Verona Pharma and Ventyx Biosciences

-0.38

Correlation Coefficient

Verona Pharma  Ventyx Biosciences

Very good diversification

The 3 months correlation between Verona and Ventyx is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Verona Pharma PLC and Ventyx Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ventyx Biosciences 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 Ventyx Biosciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ventyx Biosciences has no effect on the direction of Verona Pharma i.e., Verona Pharma and Ventyx Biosciences go up and down completely randomly.

Pair Corralation between Verona Pharma and Ventyx Biosciences

Given the investment horizon of 90 days Verona Pharma PLC is expected to generate 0.46 times more return on investment than Ventyx Biosciences. However, Verona Pharma PLC is 2.18 times less risky than Ventyx Biosciences. It trades about 0.11 of its potential returns per unit of risk. Ventyx Biosciences is currently generating about 0.03 per unit of risk. If you would invest  1,424  in Verona Pharma PLC on June 20, 2024 and sell it today you would earn a total of  1,499  from holding Verona Pharma PLC or generate 105.27% return on investment over 90 days.

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

Verona Pharma PLC  vs.  Ventyx Biosciences

Verona Pharma PLC

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Verona Pharma PLC are ranked lower than 21 (%) 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.

Ventyx Biosciences

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Verona Pharma and Ventyx Biosciences

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

The idea behind Verona Pharma PLC and Ventyx Biosciences 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.