Correlation Between Aileron Therapeutics and Adagene

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

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

Diversification Opportunities for Aileron Therapeutics and Adagene

0.76

Correlation Coefficient

Aileron Therapeutics  Adagene

Poor diversification

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

Pair Corralation between Aileron Therapeutics and Adagene

Given the investment horizon of 90 days Aileron Therapeutics is expected to generate 0.8 times more return on investment than Adagene. However, Aileron Therapeutics is 1.25 times less risky than Adagene. It trades about -0.01 of its potential returns per unit of risk. Adagene is currently generating about -0.01 per unit of risk. If you would invest  235.00  in Aileron Therapeutics on October 5, 2024 and sell it today you would lose (10.00) from holding Aileron Therapeutics or give up 4.26% of portfolio value over 90 days.

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

Aileron Therapeutics  vs.  Adagene

Aileron Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aileron Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Adagene

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adagene has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Adagene is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Aileron Therapeutics and Adagene

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

The idea behind Aileron Therapeutics and Adagene 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.