Correlation Between Lexicon Pharmaceuticals and 2Seventy Bio

Can any of the company-specific risk be diversified away by investing in both Lexicon Pharmaceuticals and 2Seventy Bio 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 Lexicon Pharmaceuticals and 2Seventy Bio into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lexicon Pharmaceuticals and 2Seventy Bio, you can compare the effects of market volatilities on Lexicon Pharmaceuticals and 2Seventy Bio 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 Lexicon Pharmaceuticals with a short position of 2Seventy Bio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lexicon Pharmaceuticals and 2Seventy Bio.

Diversification Opportunities for Lexicon Pharmaceuticals and 2Seventy Bio

0.81

Correlation Coefficient

Lexicon Pharmaceuticals  2Seventy Bio

Very poor diversification

The 3 months correlation between Lexicon and 2Seventy is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Lexicon Pharmaceuticals and 2Seventy Bio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 2Seventy Bio and Lexicon 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 Lexicon Pharmaceuticals are associated (or correlated) with 2Seventy Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 2Seventy Bio has no effect on the direction of Lexicon Pharmaceuticals i.e., Lexicon Pharmaceuticals and 2Seventy Bio go up and down completely randomly.

Pair Corralation between Lexicon Pharmaceuticals and 2Seventy Bio

Given the investment horizon of 90 days Lexicon Pharmaceuticals is expected to under-perform the 2Seventy Bio. In addition to that, Lexicon Pharmaceuticals is 1.48 times more volatile than 2Seventy Bio. It trades about -0.14 of its total potential returns per unit of risk. 2Seventy Bio is currently generating about -0.02 per unit of volatility. If you would invest  443.00  in 2Seventy Bio on September 2, 2024 and sell it today you would lose (44.00) from holding 2Seventy Bio or give up 9.93% of portfolio value over 90 days.

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

Lexicon Pharmaceuticals  vs.  2Seventy Bio

Lexicon Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lexicon Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak 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.

2Seventy Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 2Seventy Bio has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, 2Seventy Bio is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Lexicon Pharmaceuticals and 2Seventy Bio

The main advantage of trading using opposite Lexicon Pharmaceuticals and 2Seventy Bio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lexicon Pharmaceuticals position performs unexpectedly, 2Seventy Bio 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 2Seventy Bio will offset losses from the drop in 2Seventy Bio's long position.

The idea behind Lexicon Pharmaceuticals and 2Seventy Bio 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.