Correlation Between Spero Therapeutics and Gracell Biotechnologies

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

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

Diversification Opportunities for Spero Therapeutics and Gracell Biotechnologies

-0.6

Correlation Coefficient

Spero Therapeutics  Gracell Biotechnologies

Excellent diversification

The 3 months correlation between Spero and Gracell is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Spero Therapeutics and Gracell Biotechnologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gracell Biotechnologies and Spero 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 Spero Therapeutics are associated (or correlated) with Gracell Biotechnologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gracell Biotechnologies has no effect on the direction of Spero Therapeutics i.e., Spero Therapeutics and Gracell Biotechnologies go up and down completely randomly.

Pair Corralation between Spero Therapeutics and Gracell Biotechnologies

Given the investment horizon of 90 days Spero Therapeutics is expected to under-perform the Gracell Biotechnologies. But the stock apears to be less risky and, when comparing its historical volatility, Spero Therapeutics is 2.14 times less risky than Gracell Biotechnologies. The stock trades about -0.02 of its potential returns per unit of risk. The Gracell Biotechnologies is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  217.00  in Gracell Biotechnologies on August 31, 2024 and sell it today you would earn a total of  185.00  from holding Gracell Biotechnologies or generate 85.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	28.45%
Values	Daily Returns

Spero Therapeutics  vs.  Gracell Biotechnologies

Spero Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spero Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Gracell Biotechnologies

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Spero Therapeutics and Gracell Biotechnologies

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

The idea behind Spero Therapeutics and Gracell Biotechnologies 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.