Correlation Between Biomea Fusion and Stoke Therapeutics

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

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

Diversification Opportunities for Biomea Fusion and Stoke Therapeutics

-0.33

Correlation Coefficient

Biomea Fusion  Stoke Therapeutics

Very good diversification

The 3 months correlation between Biomea and Stoke is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Biomea Fusion and Stoke Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stoke Therapeutics and Biomea Fusion 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 Biomea Fusion are associated (or correlated) with Stoke Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stoke Therapeutics has no effect on the direction of Biomea Fusion i.e., Biomea Fusion and Stoke Therapeutics go up and down completely randomly.

Pair Corralation between Biomea Fusion and Stoke Therapeutics

Given the investment horizon of 90 days Biomea Fusion is expected to generate 1.33 times more return on investment than Stoke Therapeutics. However, Biomea Fusion is 1.33 times more volatile than Stoke Therapeutics. It trades about 0.01 of its potential returns per unit of risk. Stoke Therapeutics is currently generating about -0.08 per unit of risk. If you would invest  729.00  in Biomea Fusion on August 31, 2024 and sell it today you would lose (27.00) from holding Biomea Fusion or give up 3.7% of portfolio value over 90 days.

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

Biomea Fusion  vs.  Stoke Therapeutics

Biomea Fusion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Biomea Fusion has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Biomea Fusion is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Stoke Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stoke Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Biomea Fusion and Stoke Therapeutics

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

The idea behind Biomea Fusion and Stoke 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.