Correlation Between Edgewise Therapeutics and Connect Biopharma

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

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

Diversification Opportunities for Edgewise Therapeutics and Connect Biopharma

0.06

Correlation Coefficient

Edgewise Therapeutics  Connect Biopharma

Significant diversification

The 3 months correlation between Edgewise and Connect is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Edgewise Therapeutics and Connect Biopharma Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Connect Biopharma and Edgewise Therapeutics 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 Edgewise Therapeutics are associated (or correlated) with Connect Biopharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Connect Biopharma has no effect on the direction of Edgewise Therapeutics i.e., Edgewise Therapeutics and Connect Biopharma go up and down completely randomly.

Pair Corralation between Edgewise Therapeutics and Connect Biopharma

Given the investment horizon of 90 days Edgewise Therapeutics is expected to generate 1.24 times more return on investment than Connect Biopharma. However, Edgewise Therapeutics is 1.24 times more volatile than Connect Biopharma Holdings. It trades about 0.19 of its potential returns per unit of risk. Connect Biopharma Holdings is currently generating about 0.13 per unit of risk. If you would invest  1,933  in Edgewise Therapeutics on June 24, 2024 and sell it today you would earn a total of  895.00  from holding Edgewise Therapeutics or generate 46.3% return on investment over 90 days.

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

Edgewise Therapeutics  vs.  Connect Biopharma Holdings

Edgewise Therapeutics

Risk-Adjusted Performance

10 of 100

OK

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

Connect Biopharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Connect Biopharma Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Connect Biopharma is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Edgewise Therapeutics and Connect Biopharma

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

The idea behind Edgewise Therapeutics and Connect Biopharma Holdings 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.