Correlation Between Adagene and ARCA Biopharma

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

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

Diversification Opportunities for Adagene and ARCA Biopharma

0.09

Correlation Coefficient

Adagene  ARCA Biopharma

Significant diversification

The 3 months correlation between Adagene and ARCA is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Adagene and ARCA Biopharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARCA Biopharma and Adagene 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 Adagene are associated (or correlated) with ARCA Biopharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARCA Biopharma has no effect on the direction of Adagene i.e., Adagene and ARCA Biopharma go up and down completely randomly.

Pair Corralation between Adagene and ARCA Biopharma

Given the investment horizon of 90 days Adagene is expected to generate 0.73 times more return on investment than ARCA Biopharma. However, Adagene is 1.38 times less risky than ARCA Biopharma. It trades about 0.04 of its potential returns per unit of risk. ARCA Biopharma is currently generating about -0.02 per unit of risk. If you would invest  133.00  in Adagene on September 20, 2024 and sell it today you would earn a total of  71.00  from holding Adagene or generate 53.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	84.85%
Values	Daily Returns

Adagene  vs.  ARCA Biopharma

Adagene

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adagene has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Adagene is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

ARCA Biopharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ARCA Biopharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, ARCA Biopharma is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Adagene and ARCA Biopharma

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

The idea behind Adagene and ARCA Biopharma 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.