Correlation Between Revolution Medicines and Rhythm Pharmaceuticals

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

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

Diversification Opportunities for Revolution Medicines and Rhythm Pharmaceuticals

0.82

Correlation Coefficient

Revolution Medicines  Rhythm Pharmaceuticals

Very poor diversification

The 3 months correlation between Revolution and Rhythm is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Revolution Medicines and Rhythm Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rhythm Pharmaceuticals 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 Rhythm Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rhythm Pharmaceuticals has no effect on the direction of Revolution Medicines i.e., Revolution Medicines and Rhythm Pharmaceuticals go up and down completely randomly.

Pair Corralation between Revolution Medicines and Rhythm Pharmaceuticals

Given the investment horizon of 90 days Revolution Medicines is expected to generate 0.79 times more return on investment than Rhythm Pharmaceuticals. However, Revolution Medicines is 1.27 times less risky than Rhythm Pharmaceuticals. It trades about 0.22 of its potential returns per unit of risk. Rhythm Pharmaceuticals is currently generating about 0.16 per unit of risk. If you would invest  4,156  in Revolution Medicines on September 3, 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 Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Revolution Medicines  vs.  Rhythm Pharmaceuticals

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.

Rhythm Pharmaceuticals

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rhythm Pharmaceuticals are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Rhythm Pharmaceuticals displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Revolution Medicines and Rhythm Pharmaceuticals

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

The idea behind Revolution Medicines and Rhythm 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.

Check out your portfolio center.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.