Correlation Between Sarepta Therapeutics and Vertex Pharmaceuticals

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

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

Diversification Opportunities for Sarepta Therapeutics and Vertex Pharmaceuticals

0.26

Correlation Coefficient

Sarepta Therapeutics  Vertex Pharmaceuticals

Modest diversification

The 3 months correlation between Sarepta and Vertex is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Sarepta Therapeutics and Vertex Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertex Pharmaceuticals and Sarepta 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 Sarepta Therapeutics are associated (or correlated) with Vertex Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertex Pharmaceuticals has no effect on the direction of Sarepta Therapeutics i.e., Sarepta Therapeutics and Vertex Pharmaceuticals go up and down completely randomly.

Pair Corralation between Sarepta Therapeutics and Vertex Pharmaceuticals

Given the investment horizon of 90 days Sarepta Therapeutics is expected to generate 1.61 times more return on investment than Vertex Pharmaceuticals. However, Sarepta Therapeutics is 1.61 times more volatile than Vertex Pharmaceuticals. It trades about 0.01 of its potential returns per unit of risk. Vertex Pharmaceuticals is currently generating about -0.01 per unit of risk. If you would invest  13,510  in Sarepta Therapeutics on September 3, 2024 and sell it today you would lose (176.00) from holding Sarepta Therapeutics or give up 1.3% of portfolio value over 90 days.

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

Sarepta Therapeutics  vs.  Vertex Pharmaceuticals

Sarepta Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vertex Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vertex Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Vertex Pharmaceuticals is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sarepta Therapeutics and Vertex Pharmaceuticals

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

The idea behind Sarepta Therapeutics and Vertex 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.

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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.