Correlation Between Avadel Pharmaceuticals and Cresco Labs

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

Diversification Opportunities for Avadel Pharmaceuticals and Cresco Labs

0.24

Correlation Coefficient

Avadel Pharmaceuticals  Cresco Labs

Modest diversification

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

Pair Corralation between Avadel Pharmaceuticals and Cresco Labs

Given the investment horizon of 90 days Avadel Pharmaceuticals PLC is expected to under-perform the Cresco Labs. But the stock apears to be less risky and, when comparing its historical volatility, Avadel Pharmaceuticals PLC is 1.21 times less risky than Cresco Labs. The stock trades about -0.07 of its potential returns per unit of risk. The Cresco Labs is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  85.00  in Cresco Labs on December 26, 2024 and sell it today you would lose (11.00) from holding Cresco Labs or give up 12.94% of portfolio value over 90 days.

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

Avadel Pharmaceuticals PLC  vs.  Cresco Labs

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.

Cresco Labs

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cresco Labs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Cresco Labs is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Avadel Pharmaceuticals and Cresco Labs

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

The idea behind Avadel Pharmaceuticals PLC and Cresco Labs 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 Channel module to use Commodity Channel Index to analyze current equity momentum.