Correlation Between Incyte and Akero Therapeutics

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

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

Diversification Opportunities for Incyte and Akero Therapeutics

0.69

Correlation Coefficient

Incyte  Akero Therapeutics

Poor diversification

The 3 months correlation between Incyte and Akero is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Incyte and Akero Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Akero Therapeutics and Incyte 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 Incyte are associated (or correlated) with Akero Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Akero Therapeutics has no effect on the direction of Incyte i.e., Incyte and Akero Therapeutics go up and down completely randomly.

Pair Corralation between Incyte and Akero Therapeutics

Given the investment horizon of 90 days Incyte is expected to generate 8.14 times less return on investment than Akero Therapeutics. But when comparing it to its historical volatility, Incyte is 1.75 times less risky than Akero Therapeutics. It trades about 0.02 of its potential returns per unit of risk. Akero Therapeutics is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,779  in Akero Therapeutics on July 23, 2024 and sell it today you would earn a total of  344.00  from holding Akero Therapeutics or generate 12.38% return on investment over 90 days.

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

Incyte  vs.  Akero Therapeutics

Incyte

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Incyte are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Incyte is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Akero Therapeutics

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Akero Therapeutics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Akero Therapeutics displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Incyte and Akero Therapeutics

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

The idea behind Incyte and Akero 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.