Correlation Between Adagene and Aerovate Therapeutics

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

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

Diversification Opportunities for Adagene and Aerovate Therapeutics

0.26

Correlation Coefficient

Adagene  Aerovate Therapeutics

Modest diversification

The 3 months correlation between Adagene and Aerovate is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Adagene and Aerovate Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerovate Therapeutics 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 Aerovate Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aerovate Therapeutics has no effect on the direction of Adagene i.e., Adagene and Aerovate Therapeutics go up and down completely randomly.

Pair Corralation between Adagene and Aerovate Therapeutics

Given the investment horizon of 90 days Adagene is expected to generate 1.31 times less return on investment than Aerovate Therapeutics. But when comparing it to its historical volatility, Adagene is 1.07 times less risky than Aerovate Therapeutics. It trades about 0.2 of its potential returns per unit of risk. Aerovate Therapeutics is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  214.00  in Aerovate Therapeutics on August 13, 2024 and sell it today you would earn a total of  58.00  from holding Aerovate Therapeutics or generate 27.1% return on investment over 90 days.

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

Adagene  vs.  Aerovate Therapeutics

Adagene

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Adagene are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Adagene reported solid returns over the last few months and may actually be approaching a breakup point.

Aerovate Therapeutics

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aerovate Therapeutics are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Aerovate Therapeutics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Adagene and Aerovate Therapeutics

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

The idea behind Adagene and Aerovate 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.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.