Correlation Between Milestone Pharmaceuticals and Relay Therapeutics

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

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

Diversification Opportunities for Milestone Pharmaceuticals and Relay Therapeutics

0.65

Correlation Coefficient

Milestone Pharmaceuticals  Relay Therapeutics

Poor diversification

The 3 months correlation between Milestone and Relay is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Milestone Pharmaceuticals and Relay Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Relay Therapeutics and Milestone 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 Milestone Pharmaceuticals are associated (or correlated) with Relay Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Relay Therapeutics has no effect on the direction of Milestone Pharmaceuticals i.e., Milestone Pharmaceuticals and Relay Therapeutics go up and down completely randomly.

Pair Corralation between Milestone Pharmaceuticals and Relay Therapeutics

Given the investment horizon of 90 days Milestone Pharmaceuticals is expected to under-perform the Relay Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Milestone Pharmaceuticals is 1.08 times less risky than Relay Therapeutics. The stock trades about -0.05 of its potential returns per unit of risk. The Relay Therapeutics is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,232  in Relay Therapeutics on June 24, 2024 and sell it today you would lose (1,482) from holding Relay Therapeutics or give up 66.4% of portfolio value over 90 days.

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

Milestone Pharmaceuticals  vs.  Relay Therapeutics

Milestone Pharmaceuticals

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Milestone Pharmaceuticals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Milestone Pharmaceuticals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Relay Therapeutics

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Relay Therapeutics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Relay Therapeutics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Milestone Pharmaceuticals and Relay Therapeutics

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

The idea behind Milestone Pharmaceuticals and Relay Therapeutics 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.