Correlation Between Zoetis and Vertex Pharmaceuticals

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

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

Diversification Opportunities for Zoetis and Vertex Pharmaceuticals

0.85

Correlation Coefficient

Zoetis  Vertex Pharmaceuticals

Very poor diversification

The 3 months correlation between Zoetis and Vertex is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Zoetis Inc and Vertex Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertex Pharmaceuticals and Zoetis 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 Zoetis 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 Zoetis i.e., Zoetis and Vertex Pharmaceuticals go up and down completely randomly.

Pair Corralation between Zoetis and Vertex Pharmaceuticals

Considering the 90-day investment horizon Zoetis Inc is expected to generate 2.59 times more return on investment than Vertex Pharmaceuticals. However, Zoetis is 2.59 times more volatile than Vertex Pharmaceuticals. It trades about -0.09 of its potential returns per unit of risk. Vertex Pharmaceuticals is currently generating about -0.28 per unit of risk. If you would invest  16,655  in Zoetis Inc on January 29, 2024 and sell it today you would lose (813.00) from holding Zoetis Inc or give up 4.88% of portfolio value over 90 days.

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

Zoetis Inc  vs.  Vertex Pharmaceuticals

Zoetis Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zoetis Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private 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 Zoetis and Vertex Pharmaceuticals

The main advantage of trading using opposite Zoetis and Vertex Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zoetis 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 Zoetis 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.