Correlation Between Avadel Pharmaceuticals and Aurora Cannabis

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

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

Diversification Opportunities for Avadel Pharmaceuticals and Aurora Cannabis

-0.09

Correlation Coefficient

Avadel Pharmaceuticals  Aurora Cannabis

Good diversification

The 3 months correlation between Avadel and Aurora is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Avadel Pharmaceuticals PLC and Aurora Cannabis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora Cannabis and Avadel 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 Avadel Pharmaceuticals PLC are associated (or correlated) with Aurora Cannabis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora Cannabis has no effect on the direction of Avadel Pharmaceuticals i.e., Avadel Pharmaceuticals and Aurora Cannabis go up and down completely randomly.

Pair Corralation between Avadel Pharmaceuticals and Aurora Cannabis

Given the investment horizon of 90 days Avadel Pharmaceuticals is expected to generate 36.22 times less return on investment than Aurora Cannabis. But when comparing it to its historical volatility, Avadel Pharmaceuticals PLC is 3.39 times less risky than Aurora Cannabis. It trades about 0.02 of its potential returns per unit of risk. Aurora Cannabis is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  365.00  in Aurora Cannabis on December 2, 2024 and sell it today you would earn a total of  145.00  from holding Aurora Cannabis or generate 39.73% return on investment over 90 days.

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

Avadel Pharmaceuticals PLC  vs.  Aurora Cannabis

Avadel Pharmaceuticals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avadel Pharmaceuticals PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Aurora Cannabis

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aurora Cannabis are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, Aurora Cannabis sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Avadel Pharmaceuticals and Aurora Cannabis

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

The idea behind Avadel Pharmaceuticals PLC and Aurora Cannabis 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.