Correlation Between Terns Pharmaceuticals and Sage Therapeutic

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

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

Diversification Opportunities for Terns Pharmaceuticals and Sage Therapeutic

0.65

Correlation Coefficient

Terns Pharmaceuticals  Sage Therapeutic

Poor diversification

The 3 months correlation between Terns and Sage is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Terns Pharmaceuticals and Sage Therapeutic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sage Therapeutic 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 Sage Therapeutic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sage Therapeutic has no effect on the direction of Terns Pharmaceuticals i.e., Terns Pharmaceuticals and Sage Therapeutic go up and down completely randomly.

Pair Corralation between Terns Pharmaceuticals and Sage Therapeutic

Given the investment horizon of 90 days Terns Pharmaceuticals is expected to under-perform the Sage Therapeutic. But the stock apears to be less risky and, when comparing its historical volatility, Terns Pharmaceuticals is 1.13 times less risky than Sage Therapeutic. The stock trades about -0.16 of its potential returns per unit of risk. The Sage Therapeutic is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  723.00  in Sage Therapeutic on September 21, 2024 and sell it today you would lose (223.00) from holding Sage Therapeutic or give up 30.84% of portfolio value over 90 days.

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

Terns Pharmaceuticals  vs.  Sage Therapeutic

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 weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Sage Therapeutic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sage Therapeutic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Terns Pharmaceuticals and Sage Therapeutic

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

The idea behind Terns Pharmaceuticals and Sage Therapeutic 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.