Correlation Between Summit Therapeutics and Royalty Pharma

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

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

Diversification Opportunities for Summit Therapeutics and Royalty Pharma

0.59

Correlation Coefficient

Summit Therapeutics  Royalty Pharma

Very weak diversification

The 3 months correlation between Summit and Royalty is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Summit Therapeutics PLC and Royalty Pharma Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royalty Pharma Plc and Summit Therapeutics 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 Summit Therapeutics PLC are associated (or correlated) with Royalty Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royalty Pharma Plc has no effect on the direction of Summit Therapeutics i.e., Summit Therapeutics and Royalty Pharma go up and down completely randomly.

Pair Corralation between Summit Therapeutics and Royalty Pharma

Given the investment horizon of 90 days Summit Therapeutics PLC is expected to generate 6.2 times more return on investment than Royalty Pharma. However, Summit Therapeutics is 6.2 times more volatile than Royalty Pharma Plc. It trades about 0.12 of its potential returns per unit of risk. Royalty Pharma Plc is currently generating about -0.01 per unit of risk. If you would invest  814.00  in Summit Therapeutics PLC on September 27, 2024 and sell it today you would earn a total of  1,086  from holding Summit Therapeutics PLC or generate 133.42% return on investment over 90 days.

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

Summit Therapeutics PLC  vs.  Royalty Pharma Plc

Summit Therapeutics PLC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Royalty Pharma Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royalty Pharma Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Summit Therapeutics and Royalty Pharma

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

The idea behind Summit Therapeutics PLC and Royalty Pharma Plc 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.