Correlation Between US Bancorp and Vertex Pharmaceuticals

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

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

Diversification Opportunities for US Bancorp and Vertex Pharmaceuticals

0.34

Correlation Coefficient

US Bancorp  Vertex Pharmaceuticals

Weak diversification

The 3 months correlation between USB and Vertex is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding US Bancorp and Vertex Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertex Pharmaceuticals and US Bancorp 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 US Bancorp 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 US Bancorp i.e., US Bancorp and Vertex Pharmaceuticals go up and down completely randomly.

Pair Corralation between US Bancorp and Vertex Pharmaceuticals

Assuming the 90 days trading horizon US Bancorp is expected to generate 0.34 times more return on investment than Vertex Pharmaceuticals. However, US Bancorp is 2.97 times less risky than Vertex Pharmaceuticals. It trades about -0.04 of its potential returns per unit of risk. Vertex Pharmaceuticals is currently generating about -0.15 per unit of risk. If you would invest  101,550  in US Bancorp on September 27, 2024 and sell it today you would lose (1,100) from holding US Bancorp or give up 1.08% of portfolio value over 90 days.

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

US Bancorp  vs.  Vertex Pharmaceuticals

US Bancorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in US Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, US Bancorp showed solid returns over the last few months and may actually be approaching a breakup point.

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with US Bancorp and Vertex Pharmaceuticals

The main advantage of trading using opposite US Bancorp and Vertex Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Bancorp 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 US Bancorp 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.

Check out your portfolio center.

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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.