Correlation Between Verona Pharma and Eledon Pharmaceuticals

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

Diversification Opportunities for Verona Pharma and Eledon Pharmaceuticals

0.71

Correlation Coefficient

Verona Pharma  Eledon Pharmaceuticals

Poor diversification

The 3 months correlation between Verona and Eledon is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Verona Pharma PLC and Eledon Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eledon Pharmaceuticals 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 Eledon Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eledon Pharmaceuticals has no effect on the direction of Verona Pharma i.e., Verona Pharma and Eledon Pharmaceuticals go up and down completely randomly.

Pair Corralation between Verona Pharma and Eledon Pharmaceuticals

Given the investment horizon of 90 days Verona Pharma is expected to generate 1.63 times less return on investment than Eledon Pharmaceuticals. But when comparing it to its historical volatility, Verona Pharma PLC is 1.68 times less risky than Eledon Pharmaceuticals. It trades about 0.23 of its potential returns per unit of risk. Eledon Pharmaceuticals is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  272.00  in Eledon Pharmaceuticals on August 13, 2024 and sell it today you would earn a total of  211.00  from holding Eledon Pharmaceuticals or generate 77.57% return on investment over 90 days.

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

Verona Pharma PLC  vs.  Eledon Pharmaceuticals

Verona Pharma PLC

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Verona Pharma PLC are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Verona Pharma sustained solid returns over the last few months and may actually be approaching a breakup point.

Eledon Pharmaceuticals

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eledon Pharmaceuticals are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Eledon Pharmaceuticals displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Verona Pharma and Eledon Pharmaceuticals

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

The idea behind Verona Pharma PLC and Eledon Pharmaceuticals 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..