Correlation Between Alector and Puma Biotechnology

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

By analyzing existing cross correlation between Alector and Puma Biotechnology, you can compare the effects of market volatilities on Alector and Puma Biotechnology 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 Puma Biotechnology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alector and Puma Biotechnology.

Diversification Opportunities for Alector and Puma Biotechnology

-0.44

Correlation Coefficient

Alector  Puma Biotechnology

Very good diversification

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

Pair Corralation between Alector and Puma Biotechnology

Given the investment horizon of 90 days Alector is expected to under-perform the Puma Biotechnology. But the stock apears to be less risky and, when comparing its historical volatility, Alector is 1.1 times less risky than Puma Biotechnology. The stock trades about -0.1 of its potential returns per unit of risk. The Puma Biotechnology is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  308.00  in Puma Biotechnology on December 27, 2024 and sell it today you would earn a total of  5.00  from holding Puma Biotechnology or generate 1.62% return on investment over 90 days.

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

Alector  vs.  Puma Biotechnology

Alector

Risk-Adjusted Performance

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 April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Puma Biotechnology

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Puma Biotechnology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Puma Biotechnology may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Alector and Puma Biotechnology

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

The idea behind Alector and Puma Biotechnology 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..