Correlation Between Revolution Medicines and Pliant Therapeutics

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

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

Diversification Opportunities for Revolution Medicines and Pliant Therapeutics

0.42

Correlation Coefficient

Revolution Medicines  Pliant Therapeutics

Very weak diversification

The 3 months correlation between Revolution and Pliant is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Revolution Medicines and Pliant Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pliant Therapeutics and Revolution Medicines 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 Revolution Medicines are associated (or correlated) with Pliant Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pliant Therapeutics has no effect on the direction of Revolution Medicines i.e., Revolution Medicines and Pliant Therapeutics go up and down completely randomly.

Pair Corralation between Revolution Medicines and Pliant Therapeutics

Given the investment horizon of 90 days Revolution Medicines is expected to under-perform the Pliant Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Revolution Medicines is 1.65 times less risky than Pliant Therapeutics. The stock trades about -0.04 of its potential returns per unit of risk. The Pliant Therapeutics is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  162.00  in Pliant Therapeutics on May 1, 2025 and sell it today you would lose (16.00) from holding Pliant Therapeutics or give up 9.88% of portfolio value over 90 days.

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

Revolution Medicines  vs.  Pliant Therapeutics

Revolution Medicines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Revolution Medicines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pliant Therapeutics

Risk-Adjusted Performance

Weak

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

Pair Trading with Revolution Medicines and Pliant Therapeutics

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

The idea behind Revolution Medicines and Pliant 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.