Correlation Between Cabio Biotech and Alterity Therapeutics

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

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

Diversification Opportunities for Cabio Biotech and Alterity Therapeutics

0.3

Correlation Coefficient

Cabio Biotech  Alterity Therapeutics

Weak diversification

The 3 months correlation between Cabio and Alterity is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Cabio Biotech Wuhan and Alterity Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alterity Therapeutics and Cabio Biotech 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 Cabio Biotech Wuhan are associated (or correlated) with Alterity Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alterity Therapeutics has no effect on the direction of Cabio Biotech i.e., Cabio Biotech and Alterity Therapeutics go up and down completely randomly.

Pair Corralation between Cabio Biotech and Alterity Therapeutics

Assuming the 90 days trading horizon Cabio Biotech is expected to generate 2.07 times less return on investment than Alterity Therapeutics. But when comparing it to its historical volatility, Cabio Biotech Wuhan is 2.44 times less risky than Alterity Therapeutics. It trades about 0.14 of its potential returns per unit of risk. Alterity Therapeutics is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  240.00  in Alterity Therapeutics on December 22, 2024 and sell it today you would earn a total of  137.00  from holding Alterity Therapeutics or generate 57.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.72%
Values	Daily Returns

Cabio Biotech Wuhan  vs.  Alterity Therapeutics

Cabio Biotech Wuhan

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cabio Biotech Wuhan are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Cabio Biotech sustained solid returns over the last few months and may actually be approaching a breakup point.

Alterity Therapeutics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alterity Therapeutics are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical indicators, Alterity Therapeutics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cabio Biotech and Alterity Therapeutics

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

The idea behind Cabio Biotech Wuhan and Alterity 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.