Correlation Between United Therapeutics and Prometheus Biosciences

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

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

Diversification Opportunities for United Therapeutics and Prometheus Biosciences

0.54

Correlation Coefficient

United Therapeutics  Prometheus Biosciences

Very weak diversification

The 3 months correlation between United and Prometheus is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding United Therapeutics and Prometheus Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prometheus Biosciences 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 Prometheus Biosciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prometheus Biosciences has no effect on the direction of United Therapeutics i.e., United Therapeutics and Prometheus Biosciences go up and down completely randomly.

Pair Corralation between United Therapeutics and Prometheus Biosciences

Given the investment horizon of 90 days United Therapeutics is expected to generate 8.46 times less return on investment than Prometheus Biosciences. But when comparing it to its historical volatility, United Therapeutics is 3.85 times less risky than Prometheus Biosciences. It trades about 0.04 of its potential returns per unit of risk. Prometheus Biosciences is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  10,746  in Prometheus Biosciences on August 31, 2024 and sell it today you would earn a total of  9,246  from holding Prometheus Biosciences or generate 86.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	26.06%
Values	Daily Returns

United Therapeutics  vs.  Prometheus Biosciences

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.

Prometheus Biosciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prometheus Biosciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Prometheus Biosciences is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with United Therapeutics and Prometheus Biosciences

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

The idea behind United Therapeutics and Prometheus Biosciences 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 Global Correlations module to find global opportunities by holding instruments from different markets.