Correlation Between Verastem and Soleno Therapeutics

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Can any of the company-specific risk be diversified away by investing in both Verastem and Soleno Therapeutics 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 Verastem and Soleno Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Verastem and Soleno Therapeutics, you can compare the effects of market volatilities on Verastem and Soleno Therapeutics 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 Verastem with a short position of Soleno Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verastem and Soleno Therapeutics.

Diversification Opportunities for Verastem and Soleno Therapeutics

-0.53
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Verastem and Soleno is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Verastem and Soleno Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Soleno Therapeutics and Verastem 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 Verastem are associated (or correlated) with Soleno Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Soleno Therapeutics has no effect on the direction of Verastem i.e., Verastem and Soleno Therapeutics go up and down completely randomly.

Pair Corralation between Verastem and Soleno Therapeutics

Given the investment horizon of 90 days Verastem is expected to under-perform the Soleno Therapeutics. In addition to that, Verastem is 1.11 times more volatile than Soleno Therapeutics. It trades about -0.04 of its total potential returns per unit of risk. Soleno Therapeutics is currently generating about 0.13 per unit of volatility. If you would invest  4,571  in Soleno Therapeutics on November 2, 2024 and sell it today you would earn a total of  413.00  from holding Soleno Therapeutics or generate 9.04% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Verastem  vs.  Soleno Therapeutics

 Performance 
       Timeline  
Verastem 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Verastem are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Verastem displayed solid returns over the last few months and may actually be approaching a breakup point.
Soleno Therapeutics 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Soleno Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Verastem and Soleno Therapeutics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Verastem and Soleno Therapeutics

The main advantage of trading using opposite Verastem and Soleno Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Verastem position performs unexpectedly, Soleno Therapeutics 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 Soleno Therapeutics will offset losses from the drop in Soleno Therapeutics' long position.
The idea behind Verastem and Soleno Therapeutics 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.

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