Correlation Between Arcus Biosciences and Lumos Pharma

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

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

Diversification Opportunities for Arcus Biosciences and Lumos Pharma

-0.32

Correlation Coefficient

Arcus Biosciences  Lumos Pharma

Very good diversification

The 3 months correlation between Arcus and Lumos is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Arcus Biosciences and Lumos Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lumos Pharma and Arcus 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 Arcus Biosciences are associated (or correlated) with Lumos Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lumos Pharma has no effect on the direction of Arcus Biosciences i.e., Arcus Biosciences and Lumos Pharma go up and down completely randomly.

Pair Corralation between Arcus Biosciences and Lumos Pharma

Given the investment horizon of 90 days Arcus Biosciences is expected to generate 5.47 times more return on investment than Lumos Pharma. However, Arcus Biosciences is 5.47 times more volatile than Lumos Pharma. It trades about 0.09 of its potential returns per unit of risk. Lumos Pharma is currently generating about 0.08 per unit of risk. If you would invest  1,470  in Arcus Biosciences on September 23, 2024 and sell it today you would earn a total of  80.00  from holding Arcus Biosciences or generate 5.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	66.67%
Values	Daily Returns

Arcus Biosciences  vs.  Lumos Pharma

Arcus Biosciences

Risk-Adjusted Performance

0 of 100

Very Weak

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

Lumos Pharma

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Lumos Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very unsteady primary indicators, Lumos Pharma displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arcus Biosciences and Lumos Pharma

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

The idea behind Arcus Biosciences and Lumos Pharma 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.