Correlation Between Verrica Pharmaceuticals and Lexicon Pharmaceuticals

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

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

Diversification Opportunities for Verrica Pharmaceuticals and Lexicon Pharmaceuticals

0.62

Correlation Coefficient

Verrica Pharmaceuticals  Lexicon Pharmaceuticals

Poor diversification

The 3 months correlation between Verrica and Lexicon is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Verrica Pharmaceuticals and Lexicon Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lexicon Pharmaceuticals and Verrica 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 Verrica Pharmaceuticals are associated (or correlated) with Lexicon Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lexicon Pharmaceuticals has no effect on the direction of Verrica Pharmaceuticals i.e., Verrica Pharmaceuticals and Lexicon Pharmaceuticals go up and down completely randomly.

Pair Corralation between Verrica Pharmaceuticals and Lexicon Pharmaceuticals

Given the investment horizon of 90 days Verrica Pharmaceuticals is expected to under-perform the Lexicon Pharmaceuticals. In addition to that, Verrica Pharmaceuticals is 1.12 times more volatile than Lexicon Pharmaceuticals. It trades about -0.01 of its total potential returns per unit of risk. Lexicon Pharmaceuticals is currently generating about -0.01 per unit of volatility. If you would invest  211.00  in Lexicon Pharmaceuticals on August 31, 2024 and sell it today you would lose (131.00) from holding Lexicon Pharmaceuticals or give up 62.09% of portfolio value over 90 days.

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

Verrica Pharmaceuticals  vs.  Lexicon Pharmaceuticals

Verrica Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verrica Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Lexicon Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lexicon 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 fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Verrica Pharmaceuticals and Lexicon Pharmaceuticals

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

The idea behind Verrica Pharmaceuticals and Lexicon 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.

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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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.