Correlation Between Eastern and Nuvalent
Can any of the company-specific risk be diversified away by investing in both Eastern and Nuvalent 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 Eastern and Nuvalent into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eastern Co and Nuvalent, you can compare the effects of market volatilities on Eastern and Nuvalent 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 Eastern with a short position of Nuvalent. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastern and Nuvalent.
Diversification Opportunities for Eastern and Nuvalent
Very weak diversification
The 3 months correlation between Eastern and Nuvalent is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Co and Nuvalent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuvalent and Eastern 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 Eastern Co are associated (or correlated) with Nuvalent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuvalent has no effect on the direction of Eastern i.e., Eastern and Nuvalent go up and down completely randomly.
Pair Corralation between Eastern and Nuvalent
Considering the 90-day investment horizon Eastern is expected to generate 5.16 times less return on investment than Nuvalent. But when comparing it to its historical volatility, Eastern Co is 1.34 times less risky than Nuvalent. It trades about 0.02 of its potential returns per unit of risk. Nuvalent is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 6,896 in Nuvalent on September 1, 2024 and sell it today you would earn a total of 2,772 from holding Nuvalent or generate 40.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Eastern Co vs. Nuvalent
Performance |
| Timeline |
| Eastern |
| Nuvalent |
Eastern and Nuvalent Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eastern and Nuvalent
The main advantage of trading using opposite Eastern and Nuvalent positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eastern position performs unexpectedly, Nuvalent 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 Nuvalent will offset losses from the drop in Nuvalent's long position.The idea behind Eastern Co and Nuvalent 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.| Nuvalent vs. Arcellx | Nuvalent vs. Vaxcyte | Nuvalent vs. Viridian Therapeutics | Nuvalent vs. Ventyx Biosciences |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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