Correlation Between Third Harmonic and RAPT Therapeutics

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

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

Diversification Opportunities for Third Harmonic and RAPT Therapeutics

0.66

Correlation Coefficient

Third Harmonic  RAPT Therapeutics

Poor diversification

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

Pair Corralation between Third Harmonic and RAPT Therapeutics

Given the investment horizon of 90 days Third Harmonic Bio is expected to under-perform the RAPT Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Third Harmonic Bio is 8.18 times less risky than RAPT Therapeutics. The stock trades about -0.15 of its potential returns per unit of risk. The RAPT Therapeutics is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  112.00  in RAPT Therapeutics on September 24, 2024 and sell it today you would earn a total of  93.50  from holding RAPT Therapeutics or generate 83.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Third Harmonic Bio  vs.  RAPT Therapeutics

Third Harmonic Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Third Harmonic Bio has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic 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.

RAPT Therapeutics

Risk-Adjusted Performance

5 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RAPT Therapeutics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, RAPT Therapeutics unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Third Harmonic and RAPT Therapeutics

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

The idea behind Third Harmonic Bio and RAPT 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .