Correlation Between Terns Pharmaceuticals and IVERIC Bio

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

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

Diversification Opportunities for Terns Pharmaceuticals and IVERIC Bio

-0.66

Correlation Coefficient

Terns Pharmaceuticals  IVERIC Bio

Excellent diversification

The 3 months correlation between Terns and IVERIC is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Terns Pharmaceuticals and IVERIC Bio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IVERIC Bio and Terns Pharmaceuticals 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 Terns Pharmaceuticals are associated (or correlated) with IVERIC Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IVERIC Bio has no effect on the direction of Terns Pharmaceuticals i.e., Terns Pharmaceuticals and IVERIC Bio go up and down completely randomly.

Pair Corralation between Terns Pharmaceuticals and IVERIC Bio

If you would invest  746.00  in Terns Pharmaceuticals on September 5, 2024 and sell it today you would lose (38.00) from holding Terns Pharmaceuticals or give up 5.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	1.56%
Values	Daily Returns

Terns Pharmaceuticals  vs.  IVERIC Bio

Terns Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

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

IVERIC Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IVERIC Bio has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, IVERIC Bio is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Terns Pharmaceuticals and IVERIC Bio

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

The idea behind Terns Pharmaceuticals and IVERIC Bio 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.