Correlation Between Aurora Cannabis and Avadel Pharmaceuticals

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

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

Diversification Opportunities for Aurora Cannabis and Avadel Pharmaceuticals

0.6

Correlation Coefficient

Aurora Cannabis  Avadel Pharmaceuticals

Poor diversification

The 3 months correlation between Aurora and Avadel is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Aurora Cannabis and Avadel Pharmaceuticals PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avadel Pharmaceuticals and Aurora Cannabis 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 Aurora Cannabis are associated (or correlated) with Avadel Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avadel Pharmaceuticals has no effect on the direction of Aurora Cannabis i.e., Aurora Cannabis and Avadel Pharmaceuticals go up and down completely randomly.

Pair Corralation between Aurora Cannabis and Avadel Pharmaceuticals

Considering the 90-day investment horizon Aurora Cannabis is expected to generate 0.81 times more return on investment than Avadel Pharmaceuticals. However, Aurora Cannabis is 1.24 times less risky than Avadel Pharmaceuticals. It trades about -0.08 of its potential returns per unit of risk. Avadel Pharmaceuticals PLC is currently generating about -0.11 per unit of risk. If you would invest  560.00  in Aurora Cannabis on September 5, 2024 and sell it today you would lose (119.00) from holding Aurora Cannabis or give up 21.25% of portfolio value over 90 days.

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

Aurora Cannabis  vs.  Avadel Pharmaceuticals PLC

Aurora Cannabis

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aurora Cannabis has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Avadel Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avadel Pharmaceuticals PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Aurora Cannabis and Avadel Pharmaceuticals

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

The idea behind Aurora Cannabis and Avadel Pharmaceuticals PLC 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.