Correlation Between Ensign and Verastem

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

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

Diversification Opportunities for Ensign and Verastem

0.47

Correlation Coefficient

Ensign  Verastem

Very weak diversification

The 3 months correlation between Ensign and Verastem is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding The Ensign Group and Verastem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verastem and Ensign 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 The Ensign Group are associated (or correlated) with Verastem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verastem has no effect on the direction of Ensign i.e., Ensign and Verastem go up and down completely randomly.

Pair Corralation between Ensign and Verastem

Given the investment horizon of 90 days Ensign is expected to generate 2.59 times less return on investment than Verastem. But when comparing it to its historical volatility, The Ensign Group is 5.84 times less risky than Verastem. It trades about 0.07 of its potential returns per unit of risk. Verastem is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  459.00  in Verastem on August 13, 2024 and sell it today you would lose (64.00) from holding Verastem or give up 13.94% of portfolio value over 90 days.

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

The Ensign Group  vs.  Verastem

Ensign Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Ensign Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Ensign is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Verastem

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Verastem are ranked lower than 12 (%) 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.

Pair Trading with Ensign and Verastem

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

The idea behind The Ensign Group and Verastem 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.