Correlation Between United Therapeutics and Biomarin Pharmaceutical

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

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

Diversification Opportunities for United Therapeutics and Biomarin Pharmaceutical

-0.45

Correlation Coefficient

United Therapeutics  Biomarin Pharmaceutical

Very good diversification

The 3 months correlation between United and Biomarin is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding United Therapeutics and Biomarin Pharmaceutical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biomarin Pharmaceutical and United Therapeutics 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 United Therapeutics are associated (or correlated) with Biomarin Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biomarin Pharmaceutical has no effect on the direction of United Therapeutics i.e., United Therapeutics and Biomarin Pharmaceutical go up and down completely randomly.

Pair Corralation between United Therapeutics and Biomarin Pharmaceutical

Given the investment horizon of 90 days United Therapeutics is expected to generate 0.88 times more return on investment than Biomarin Pharmaceutical. However, United Therapeutics is 1.14 times less risky than Biomarin Pharmaceutical. It trades about 0.04 of its potential returns per unit of risk. Biomarin Pharmaceutical is currently generating about -0.04 per unit of risk. If you would invest  28,001  in United Therapeutics on August 31, 2024 and sell it today you would earn a total of  9,812  from holding United Therapeutics or generate 35.04% return on investment over 90 days.

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

United Therapeutics  vs.  Biomarin Pharmaceutical

United Therapeutics

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United Therapeutics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical indicators, United Therapeutics may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Biomarin Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Biomarin Pharmaceutical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with United Therapeutics and Biomarin Pharmaceutical

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

The idea behind United Therapeutics and Biomarin Pharmaceutical 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.