Correlation Between Alector and Aadi Bioscience

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

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

Diversification Opportunities for Alector and Aadi Bioscience

-0.76

Correlation Coefficient

Alector  Aadi Bioscience

Pay attention - limited upside

The 3 months correlation between Alector and Aadi is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Alector and Aadi Bioscience in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aadi Bioscience and Alector 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 Alector are associated (or correlated) with Aadi Bioscience. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aadi Bioscience has no effect on the direction of Alector i.e., Alector and Aadi Bioscience go up and down completely randomly.

Pair Corralation between Alector and Aadi Bioscience

Given the investment horizon of 90 days Alector is expected to under-perform the Aadi Bioscience. But the stock apears to be less risky and, when comparing its historical volatility, Alector is 1.29 times less risky than Aadi Bioscience. The stock trades about -0.24 of its potential returns per unit of risk. The Aadi Bioscience is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  228.00  in Aadi Bioscience on October 22, 2024 and sell it today you would earn a total of  70.00  from holding Aadi Bioscience or generate 30.7% return on investment over 90 days.

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

Alector  vs.  Aadi Bioscience

Alector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alector has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Aadi Bioscience

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aadi Bioscience are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental indicators, Aadi Bioscience demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alector and Aadi Bioscience

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

The idea behind Alector and Aadi Bioscience 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.