Correlation Between IGM Biosciences and Revolution Medicines

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

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

Diversification Opportunities for IGM Biosciences and Revolution Medicines

-0.22

Correlation Coefficient

IGM Biosciences  Revolution Medicines

Very good diversification

The 3 months correlation between IGM and Revolution is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding IGM Biosciences and Revolution Medicines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Revolution Medicines and IGM Biosciences 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 IGM Biosciences 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 IGM Biosciences i.e., IGM Biosciences and Revolution Medicines go up and down completely randomly.

Pair Corralation between IGM Biosciences and Revolution Medicines

Given the investment horizon of 90 days IGM Biosciences is expected to generate 1.86 times less return on investment than Revolution Medicines. In addition to that, IGM Biosciences is 2.99 times more volatile than Revolution Medicines. It trades about 0.04 of its total potential returns per unit of risk. Revolution Medicines is currently generating about 0.22 per unit of volatility. If you would invest  4,156  in Revolution Medicines on September 2, 2024 and sell it today you would earn a total of  1,629  from holding Revolution Medicines or generate 39.2% return on investment over 90 days.

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

IGM Biosciences  vs.  Revolution Medicines

IGM Biosciences

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in IGM Biosciences are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, IGM Biosciences unveiled solid returns over the last few months and may actually be approaching a breakup point.

Revolution Medicines

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Revolution Medicines are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, Revolution Medicines exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IGM Biosciences and Revolution Medicines

The main advantage of trading using opposite IGM Biosciences and Revolution Medicines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IGM Biosciences 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 IGM Biosciences 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.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.