Correlation Between Entera Bio and Seres Therapeutics

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

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

Diversification Opportunities for Entera Bio and Seres Therapeutics

0.56

Correlation Coefficient

Entera Bio  Seres Therapeutics

Very weak diversification

The 3 months correlation between Entera and Seres is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Entera Bio and Seres Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seres Therapeutics and Entera Bio 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 Entera Bio are associated (or correlated) with Seres Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seres Therapeutics has no effect on the direction of Entera Bio i.e., Entera Bio and Seres Therapeutics go up and down completely randomly.

Pair Corralation between Entera Bio and Seres Therapeutics

Given the investment horizon of 90 days Entera Bio is expected to under-perform the Seres Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Entera Bio is 1.92 times less risky than Seres Therapeutics. The stock trades about -0.08 of its potential returns per unit of risk. The Seres Therapeutics is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  78.00  in Seres Therapeutics on September 3, 2024 and sell it today you would earn a total of  20.00  from holding Seres Therapeutics or generate 25.64% return on investment over 90 days.

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

Entera Bio  vs.  Seres Therapeutics

Entera Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Entera Bio has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly 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.

Seres Therapeutics

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Seres Therapeutics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Seres Therapeutics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Entera Bio and Seres Therapeutics

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

The idea behind Entera Bio and Seres 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.

Check out your portfolio center.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.