Correlation Between Enanta Pharmaceuticals and Verona Pharma

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

By analyzing existing cross correlation between Enanta Pharmaceuticals and Verona Pharma PLC, you can compare the effects of market volatilities on Enanta Pharmaceuticals and Verona Pharma 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 Enanta Pharmaceuticals with a short position of Verona Pharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Enanta Pharmaceuticals and Verona Pharma.

Diversification Opportunities for Enanta Pharmaceuticals and Verona Pharma

-0.54

Correlation Coefficient

Enanta Pharmaceuticals  Verona Pharma

Excellent diversification

The 3 months correlation between Enanta and Verona is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Enanta Pharmaceuticals and Verona Pharma PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verona Pharma PLC and Enanta 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 Enanta Pharmaceuticals are associated (or correlated) with Verona Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verona Pharma PLC has no effect on the direction of Enanta Pharmaceuticals i.e., Enanta Pharmaceuticals and Verona Pharma go up and down completely randomly.

Pair Corralation between Enanta Pharmaceuticals and Verona Pharma

Given the investment horizon of 90 days Enanta Pharmaceuticals is expected to under-perform the Verona Pharma. But the stock apears to be less risky and, when comparing its historical volatility, Enanta Pharmaceuticals is 1.09 times less risky than Verona Pharma. The stock trades about -0.07 of its potential returns per unit of risk. The Verona Pharma PLC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,299  in Verona Pharma PLC on September 4, 2024 and sell it today you would earn a total of  2,567  from holding Verona Pharma PLC or generate 197.61% return on investment over 90 days.

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

Enanta Pharmaceuticals  vs.  Verona Pharma PLC

Enanta Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enanta Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Verona Pharma PLC

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Verona Pharma PLC are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Verona Pharma sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enanta Pharmaceuticals and Verona Pharma

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

The idea behind Enanta Pharmaceuticals and Verona Pharma PLC 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.