Correlation Between ACADIA Pharmaceuticals and Akero Therapeutics

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

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

Diversification Opportunities for ACADIA Pharmaceuticals and Akero Therapeutics

0.28

Correlation Coefficient

ACADIA Pharmaceuticals  Akero Therapeutics

Modest diversification

The 3 months correlation between ACADIA and Akero is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding ACADIA Pharmaceuticals and Akero Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Akero Therapeutics and ACADIA Pharmaceuticals 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 ACADIA Pharmaceuticals 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 ACADIA Pharmaceuticals i.e., ACADIA Pharmaceuticals and Akero Therapeutics go up and down completely randomly.

Pair Corralation between ACADIA Pharmaceuticals and Akero Therapeutics

Given the investment horizon of 90 days ACADIA Pharmaceuticals is expected to generate 0.73 times more return on investment than Akero Therapeutics. However, ACADIA Pharmaceuticals is 1.37 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 0.01 per unit of risk. If you would invest  1,632  in ACADIA Pharmaceuticals on September 23, 2024 and sell it today you would earn a total of  55.00  from holding ACADIA Pharmaceuticals or generate 3.37% return on investment over 90 days.

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

ACADIA Pharmaceuticals  vs.  Akero Therapeutics

ACADIA Pharmaceuticals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ACADIA Pharmaceuticals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, ACADIA Pharmaceuticals is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Akero Therapeutics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Akero Therapeutics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Akero Therapeutics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ACADIA Pharmaceuticals and Akero Therapeutics

The main advantage of trading using opposite ACADIA Pharmaceuticals and Akero Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ACADIA Pharmaceuticals 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 ACADIA Pharmaceuticals 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.