Correlation Between Avadel Pharmaceuticals and Alliance Entertainment

Can any of the company-specific risk be diversified away by investing in both Avadel Pharmaceuticals and Alliance Entertainment 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 Alliance Entertainment 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 Alliance Entertainment Holding, you can compare the effects of market volatilities on Avadel Pharmaceuticals and Alliance Entertainment 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 Alliance Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avadel Pharmaceuticals and Alliance Entertainment.

Diversification Opportunities for Avadel Pharmaceuticals and Alliance Entertainment

0.24

Correlation Coefficient

Avadel Pharmaceuticals  Alliance Entertainment

Modest diversification

The 3 months correlation between Avadel and Alliance is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Avadel Pharmaceuticals PLC and Alliance Entertainment Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Entertainment 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 Alliance Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Entertainment has no effect on the direction of Avadel Pharmaceuticals i.e., Avadel Pharmaceuticals and Alliance Entertainment go up and down completely randomly.

Pair Corralation between Avadel Pharmaceuticals and Alliance Entertainment

Given the investment horizon of 90 days Avadel Pharmaceuticals PLC is expected to under-perform the Alliance Entertainment. But the stock apears to be less risky and, when comparing its historical volatility, Avadel Pharmaceuticals PLC is 3.82 times less risky than Alliance Entertainment. The stock trades about -0.04 of its potential returns per unit of risk. The Alliance Entertainment Holding is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  33.00  in Alliance Entertainment Holding on December 20, 2024 and sell it today you would lose (6.60) from holding Alliance Entertainment Holding or give up 20.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.33%
Values	Daily Returns

Avadel Pharmaceuticals PLC  vs.  Alliance Entertainment Holding

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 latest weak performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Alliance Entertainment

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Entertainment Holding are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Alliance Entertainment showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Avadel Pharmaceuticals and Alliance Entertainment

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

The idea behind Avadel Pharmaceuticals PLC and Alliance Entertainment Holding 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 Commodity Directory module to find actively traded commodities issued by global exchanges.