Correlation Between Revolution Medicines and Cytokinetics

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

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

Diversification Opportunities for Revolution Medicines and Cytokinetics

-0.25

Correlation Coefficient

Revolution Medicines  Cytokinetics

Very good diversification

The 3 months correlation between Revolution and Cytokinetics is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Revolution Medicines and Cytokinetics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cytokinetics and Revolution Medicines 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 Revolution Medicines are associated (or correlated) with Cytokinetics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cytokinetics has no effect on the direction of Revolution Medicines i.e., Revolution Medicines and Cytokinetics go up and down completely randomly.

Pair Corralation between Revolution Medicines and Cytokinetics

Given the investment horizon of 90 days Revolution Medicines is expected to generate 1.01 times more return on investment than Cytokinetics. However, Revolution Medicines is 1.01 times more volatile than Cytokinetics. It trades about 0.22 of its potential returns per unit of risk. Cytokinetics is currently generating about -0.02 per unit of risk. 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

Revolution Medicines  vs.  Cytokinetics

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.

Cytokinetics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cytokinetics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Cytokinetics is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Revolution Medicines and Cytokinetics

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

The idea behind Revolution Medicines and Cytokinetics 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.