Correlation Between Terns Pharmaceuticals and Leap Therapeutics

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

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

Diversification Opportunities for Terns Pharmaceuticals and Leap Therapeutics

-0.22

Correlation Coefficient

Terns Pharmaceuticals  Leap Therapeutics

Very good diversification

The 3 months correlation between Terns and Leap is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Terns Pharmaceuticals and Leap Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leap Therapeutics 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 Leap Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leap Therapeutics has no effect on the direction of Terns Pharmaceuticals i.e., Terns Pharmaceuticals and Leap Therapeutics go up and down completely randomly.

Pair Corralation between Terns Pharmaceuticals and Leap Therapeutics

Given the investment horizon of 90 days Terns Pharmaceuticals is expected to under-perform the Leap Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Terns Pharmaceuticals is 1.05 times less risky than Leap Therapeutics. The stock trades about -0.02 of its potential returns per unit of risk. The Leap Therapeutics is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  286.00  in Leap Therapeutics on September 2, 2024 and sell it today you would earn a total of  12.00  from holding Leap Therapeutics or generate 4.2% return on investment over 90 days.

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

Terns Pharmaceuticals  vs.  Leap Therapeutics

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 latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Leap Therapeutics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Leap Therapeutics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Leap Therapeutics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Terns Pharmaceuticals and Leap Therapeutics

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

The idea behind Terns Pharmaceuticals and Leap Therapeutics 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.