Correlation Between Avenue Therapeutics and Emergent Biosolutions

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

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

Diversification Opportunities for Avenue Therapeutics and Emergent Biosolutions

0.3

Correlation Coefficient

Avenue Therapeutics  Emergent Biosolutions

Weak diversification

The 3 months correlation between Avenue and Emergent is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Avenue Therapeutics and Emergent Biosolutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emergent Biosolutions and Avenue 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 Avenue Therapeutics are associated (or correlated) with Emergent Biosolutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emergent Biosolutions has no effect on the direction of Avenue Therapeutics i.e., Avenue Therapeutics and Emergent Biosolutions go up and down completely randomly.

Pair Corralation between Avenue Therapeutics and Emergent Biosolutions

Given the investment horizon of 90 days Avenue Therapeutics is expected to generate 4.87 times less return on investment than Emergent Biosolutions. In addition to that, Avenue Therapeutics is 1.17 times more volatile than Emergent Biosolutions. It trades about 0.05 of its total potential returns per unit of risk. Emergent Biosolutions is currently generating about 0.3 per unit of volatility. If you would invest  806.00  in Emergent Biosolutions on October 20, 2024 and sell it today you would earn a total of  182.00  from holding Emergent Biosolutions or generate 22.58% return on investment over 90 days.

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

Avenue Therapeutics  vs.  Emergent Biosolutions

Avenue Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avenue Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Avenue Therapeutics is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Emergent Biosolutions

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Emergent Biosolutions are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental drivers, Emergent Biosolutions may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Avenue Therapeutics and Emergent Biosolutions

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

The idea behind Avenue Therapeutics and Emergent Biosolutions 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.