Correlation Between NextCure and DiaMedica Therapeutics

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

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

Diversification Opportunities for NextCure and DiaMedica Therapeutics

-0.65

Correlation Coefficient

NextCure  DiaMedica Therapeutics

Excellent diversification

The 3 months correlation between NextCure and DiaMedica is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding NextCure and DiaMedica Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DiaMedica Therapeutics and NextCure 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 NextCure are associated (or correlated) with DiaMedica Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DiaMedica Therapeutics has no effect on the direction of NextCure i.e., NextCure and DiaMedica Therapeutics go up and down completely randomly.

Pair Corralation between NextCure and DiaMedica Therapeutics

Given the investment horizon of 90 days NextCure is expected to under-perform the DiaMedica Therapeutics. In addition to that, NextCure is 1.04 times more volatile than DiaMedica Therapeutics. It trades about -0.09 of its total potential returns per unit of risk. DiaMedica Therapeutics is currently generating about 0.19 per unit of volatility. If you would invest  389.00  in DiaMedica Therapeutics on September 3, 2024 and sell it today you would earn a total of  177.00  from holding DiaMedica Therapeutics or generate 45.5% return on investment over 90 days.

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

NextCure  vs.  DiaMedica Therapeutics

NextCure

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NextCure 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 rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

DiaMedica Therapeutics

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DiaMedica Therapeutics are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, DiaMedica Therapeutics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NextCure and DiaMedica Therapeutics

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

The idea behind NextCure and DiaMedica 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.

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.