Correlation Between Algernon Pharmaceuticals and Axim Biotechnologies

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

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

Diversification Opportunities for Algernon Pharmaceuticals and Axim Biotechnologies

0.5

Correlation Coefficient

Algernon Pharmaceuticals  Axim Biotechnologies

Very weak diversification

The 3 months correlation between Algernon and Axim is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Algernon Pharmaceuticals and Axim Biotechnologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axim Biotechnologies and Algernon 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 Algernon Pharmaceuticals are associated (or correlated) with Axim Biotechnologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axim Biotechnologies has no effect on the direction of Algernon Pharmaceuticals i.e., Algernon Pharmaceuticals and Axim Biotechnologies go up and down completely randomly.

Pair Corralation between Algernon Pharmaceuticals and Axim Biotechnologies

Assuming the 90 days horizon Algernon Pharmaceuticals is expected to generate 1.64 times less return on investment than Axim Biotechnologies. But when comparing it to its historical volatility, Algernon Pharmaceuticals is 2.01 times less risky than Axim Biotechnologies. It trades about 0.12 of its potential returns per unit of risk. Axim Biotechnologies is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  0.20  in Axim Biotechnologies on December 19, 2024 and sell it today you would earn a total of  0.10  from holding Axim Biotechnologies or generate 50.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Algernon Pharmaceuticals  vs.  Axim Biotechnologies

Algernon Pharmaceuticals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Algernon Pharmaceuticals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Algernon Pharmaceuticals reported solid returns over the last few months and may actually be approaching a breakup point.

Axim Biotechnologies

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Axim Biotechnologies are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile forward indicators, Axim Biotechnologies displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Algernon Pharmaceuticals and Axim Biotechnologies

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

The idea behind Algernon Pharmaceuticals and Axim Biotechnologies 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.