Correlation Between Vertex Pharmaceuticals and CSL

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

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

Diversification Opportunities for Vertex Pharmaceuticals and CSL

0.3

Correlation Coefficient

Vertex Pharmaceuticals  CSL

Weak diversification

The 3 months correlation between Vertex and CSL is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Vertex Pharmaceuticals Incorpo and CSL LTD SPONADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSL LTD SPONADR and Vertex 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 Vertex Pharmaceuticals Incorporated are associated (or correlated) with CSL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSL LTD SPONADR has no effect on the direction of Vertex Pharmaceuticals i.e., Vertex Pharmaceuticals and CSL go up and down completely randomly.

Pair Corralation between Vertex Pharmaceuticals and CSL

Assuming the 90 days horizon Vertex Pharmaceuticals Incorporated is expected to generate 0.71 times more return on investment than CSL. However, Vertex Pharmaceuticals Incorporated is 1.41 times less risky than CSL. It trades about -0.06 of its potential returns per unit of risk. CSL LTD SPONADR is currently generating about -0.05 per unit of risk. If you would invest  45,290  in Vertex Pharmaceuticals Incorporated on January 31, 2025 and sell it today you would lose (1,810) from holding Vertex Pharmaceuticals Incorporated or give up 4.0% of portfolio value over 90 days.

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

Vertex Pharmaceuticals Incorpo  vs.  CSL LTD SPONADR

Vertex Pharmaceuticals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vertex Pharmaceuticals Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Vertex Pharmaceuticals is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

CSL LTD SPONADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days CSL LTD SPONADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's forward-looking indicators remain nearly stable which may send shares a bit higher in June 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Vertex Pharmaceuticals and CSL

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

The idea behind Vertex Pharmaceuticals Incorporated and CSL LTD SPONADR 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.