Correlation Between ACADIA Pharmaceuticals and Axsome Therapeutics

Can any of the company-specific risk be diversified away by investing in both ACADIA Pharmaceuticals and Axsome 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 Axsome 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 Axsome Therapeutics, you can compare the effects of market volatilities on ACADIA Pharmaceuticals and Axsome 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 Axsome Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of ACADIA Pharmaceuticals and Axsome Therapeutics.

Diversification Opportunities for ACADIA Pharmaceuticals and Axsome Therapeutics

0.44

Correlation Coefficient

ACADIA Pharmaceuticals  Axsome Therapeutics

Very weak diversification

The 3 months correlation between ACADIA and Axsome is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding ACADIA Pharmaceuticals and Axsome Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axsome 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 Axsome Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axsome Therapeutics has no effect on the direction of ACADIA Pharmaceuticals i.e., ACADIA Pharmaceuticals and Axsome Therapeutics go up and down completely randomly.

Pair Corralation between ACADIA Pharmaceuticals and Axsome Therapeutics

Given the investment horizon of 90 days ACADIA Pharmaceuticals is expected to generate 8.4 times less return on investment than Axsome Therapeutics. But when comparing it to its historical volatility, ACADIA Pharmaceuticals is 1.48 times less risky than Axsome Therapeutics. It trades about 0.03 of its potential returns per unit of risk. Axsome Therapeutics is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  8,478  in Axsome Therapeutics on December 28, 2024 and sell it today you would earn a total of  3,375  from holding Axsome Therapeutics or generate 39.81% return on investment over 90 days.

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

ACADIA Pharmaceuticals  vs.  Axsome Therapeutics

ACADIA Pharmaceuticals

Risk-Adjusted Performance

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.

Axsome Therapeutics

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Axsome Therapeutics are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Axsome Therapeutics displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ACADIA Pharmaceuticals and Axsome Therapeutics

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

The idea behind ACADIA Pharmaceuticals and Axsome 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.