Correlation Between Arrowhead Pharmaceuticals and Aerovate Therapeutics

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

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

Diversification Opportunities for Arrowhead Pharmaceuticals and Aerovate Therapeutics

0.46

Correlation Coefficient

Arrowhead Pharmaceuticals  Aerovate Therapeutics

Very weak diversification

The 3 months correlation between Arrowhead and Aerovate is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Arrowhead Pharmaceuticals and Aerovate Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerovate Therapeutics and Arrowhead 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 Arrowhead Pharmaceuticals are associated (or correlated) with Aerovate Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aerovate Therapeutics has no effect on the direction of Arrowhead Pharmaceuticals i.e., Arrowhead Pharmaceuticals and Aerovate Therapeutics go up and down completely randomly.

Pair Corralation between Arrowhead Pharmaceuticals and Aerovate Therapeutics

Given the investment horizon of 90 days Arrowhead Pharmaceuticals is expected to under-perform the Aerovate Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Arrowhead Pharmaceuticals is 1.65 times less risky than Aerovate Therapeutics. The stock trades about -0.01 of its potential returns per unit of risk. The Aerovate Therapeutics is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,333  in Aerovate Therapeutics on October 4, 2024 and sell it today you would lose (1,068) from holding Aerovate Therapeutics or give up 80.12% of portfolio value over 90 days.

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

Arrowhead Pharmaceuticals  vs.  Aerovate Therapeutics

Arrowhead Pharmaceuticals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arrowhead Pharmaceuticals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Arrowhead Pharmaceuticals may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Aerovate Therapeutics

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aerovate Therapeutics are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Aerovate Therapeutics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arrowhead Pharmaceuticals and Aerovate Therapeutics

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

The idea behind Arrowhead Pharmaceuticals and Aerovate Therapeutics 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.