Correlation Between NLIGHT and Vertex Pharmaceuticals

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

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

Diversification Opportunities for NLIGHT and Vertex Pharmaceuticals

0.74

Correlation Coefficient

NLIGHT  Vertex Pharmaceuticals

Poor diversification

The 3 months correlation between NLIGHT and Vertex is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding nLIGHT Inc and Vertex Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertex Pharmaceuticals and NLIGHT 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 nLIGHT Inc are associated (or correlated) with Vertex Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertex Pharmaceuticals has no effect on the direction of NLIGHT i.e., NLIGHT and Vertex Pharmaceuticals go up and down completely randomly.

Pair Corralation between NLIGHT and Vertex Pharmaceuticals

Given the investment horizon of 90 days nLIGHT Inc is expected to generate 1.76 times more return on investment than Vertex Pharmaceuticals. However, NLIGHT is 1.76 times more volatile than Vertex Pharmaceuticals. It trades about 0.1 of its potential returns per unit of risk. Vertex Pharmaceuticals is currently generating about 0.04 per unit of risk. If you would invest  834.00  in nLIGHT Inc on January 30, 2024 and sell it today you would earn a total of  322.00  from holding nLIGHT Inc or generate 38.61% return on investment over 90 days.

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

nLIGHT Inc  vs.  Vertex Pharmaceuticals

nLIGHT Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days nLIGHT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Vertex Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vertex Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with NLIGHT and Vertex Pharmaceuticals

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

The idea behind nLIGHT Inc and Vertex 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.