Correlation Between Incyte and Terns Pharmaceuticals

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

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

Diversification Opportunities for Incyte and Terns Pharmaceuticals

-0.55

Correlation Coefficient

Incyte  Terns Pharmaceuticals

Excellent diversification

The 3 months correlation between Incyte and Terns is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Incyte and Terns Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Terns Pharmaceuticals and Incyte 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 Incyte are associated (or correlated) with Terns Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Terns Pharmaceuticals has no effect on the direction of Incyte i.e., Incyte and Terns Pharmaceuticals go up and down completely randomly.

Pair Corralation between Incyte and Terns Pharmaceuticals

Given the investment horizon of 90 days Incyte is expected to generate 0.49 times more return on investment than Terns Pharmaceuticals. However, Incyte is 2.06 times less risky than Terns Pharmaceuticals. It trades about 0.09 of its potential returns per unit of risk. Terns Pharmaceuticals is currently generating about -0.03 per unit of risk. If you would invest  6,433  in Incyte on September 4, 2024 and sell it today you would earn a total of  891.00  from holding Incyte or generate 13.85% return on investment over 90 days.

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

Incyte  vs.  Terns Pharmaceuticals

Incyte

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Incyte are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Incyte showed solid returns over the last few months and may actually be approaching a breakup point.

Terns Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Terns Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Incyte and Terns Pharmaceuticals

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

The idea behind Incyte and Terns Pharmaceuticals 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.