Correlation Between Verona Pharma and EXACT Sciences

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

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

Diversification Opportunities for Verona Pharma and EXACT Sciences

-0.5

Correlation Coefficient

Verona Pharma  EXACT Sciences

Very good diversification

The 3 months correlation between Verona and EXACT is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Verona Pharma PLC and EXACT Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EXACT Sciences and Verona Pharma 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 Verona Pharma PLC are associated (or correlated) with EXACT Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EXACT Sciences has no effect on the direction of Verona Pharma i.e., Verona Pharma and EXACT Sciences go up and down completely randomly.

Pair Corralation between Verona Pharma and EXACT Sciences

Given the investment horizon of 90 days Verona Pharma PLC is expected to generate 0.69 times more return on investment than EXACT Sciences. However, Verona Pharma PLC is 1.44 times less risky than EXACT Sciences. It trades about 0.18 of its potential returns per unit of risk. EXACT Sciences is currently generating about 0.0 per unit of risk. If you would invest  2,999  in Verona Pharma PLC on September 12, 2024 and sell it today you would earn a total of  997.00  from holding Verona Pharma PLC or generate 33.24% return on investment over 90 days.

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

Verona Pharma PLC  vs.  EXACT Sciences

Verona Pharma PLC

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Verona Pharma PLC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Verona Pharma sustained solid returns over the last few months and may actually be approaching a breakup point.

EXACT Sciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EXACT Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, EXACT Sciences is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Verona Pharma and EXACT Sciences

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

The idea behind Verona Pharma PLC and EXACT Sciences 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.