Correlation Between Annexon and Heron Therapeuti

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

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

Diversification Opportunities for Annexon and Heron Therapeuti

0.51

Correlation Coefficient

Annexon  Heron Therapeuti

Very weak diversification

The 3 months correlation between Annexon and Heron is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Annexon and Heron Therapeuti in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heron Therapeuti and Annexon 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 Annexon are associated (or correlated) with Heron Therapeuti. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heron Therapeuti has no effect on the direction of Annexon i.e., Annexon and Heron Therapeuti go up and down completely randomly.

Pair Corralation between Annexon and Heron Therapeuti

Given the investment horizon of 90 days Annexon is expected to under-perform the Heron Therapeuti. But the stock apears to be less risky and, when comparing its historical volatility, Annexon is 2.25 times less risky than Heron Therapeuti. The stock trades about -0.08 of its potential returns per unit of risk. The Heron Therapeuti is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  117.00  in Heron Therapeuti on September 19, 2024 and sell it today you would earn a total of  48.00  from holding Heron Therapeuti or generate 41.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Annexon  vs.  Heron Therapeuti

Annexon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Annexon has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly 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.

Heron Therapeuti

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heron Therapeuti has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Heron Therapeuti is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Annexon and Heron Therapeuti

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

The idea behind Annexon and Heron Therapeuti 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.