Correlation Between Black Diamond and Revolution Medicines

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

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

Diversification Opportunities for Black Diamond and Revolution Medicines

-0.8

Correlation Coefficient

Black Diamond  Revolution Medicines

Pay attention - limited upside

The 3 months correlation between Black and Revolution is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Black Diamond Therapeutics and Revolution Medicines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Revolution Medicines and Black Diamond 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 Black Diamond Therapeutics are associated (or correlated) with Revolution Medicines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Revolution Medicines has no effect on the direction of Black Diamond i.e., Black Diamond and Revolution Medicines go up and down completely randomly.

Pair Corralation between Black Diamond and Revolution Medicines

Given the investment horizon of 90 days Black Diamond Therapeutics is expected to under-perform the Revolution Medicines. In addition to that, Black Diamond is 1.75 times more volatile than Revolution Medicines. It trades about -0.28 of its total potential returns per unit of risk. Revolution Medicines is currently generating about 0.21 per unit of volatility. If you would invest  4,263  in Revolution Medicines on August 30, 2024 and sell it today you would earn a total of  1,595  from holding Revolution Medicines or generate 37.41% return on investment over 90 days.

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

Black Diamond Therapeutics  vs.  Revolution Medicines

Black Diamond Therap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Black Diamond Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Revolution Medicines

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Revolution Medicines are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Revolution Medicines exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Black Diamond and Revolution Medicines

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

The idea behind Black Diamond Therapeutics and Revolution Medicines 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 Anywhere module to track or share privately all of your investments from the convenience of any device.