Correlation Between Avadel Pharmaceuticals and Grifols SA

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

Diversification Opportunities for Avadel Pharmaceuticals and Grifols SA

0.68

Correlation Coefficient

Avadel Pharmaceuticals  Grifols SA

Poor diversification

The 3 months correlation between Avadel and Grifols is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Avadel Pharmaceuticals PLC and Grifols SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grifols SA ADR 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 Grifols SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grifols SA ADR has no effect on the direction of Avadel Pharmaceuticals i.e., Avadel Pharmaceuticals and Grifols SA go up and down completely randomly.

Pair Corralation between Avadel Pharmaceuticals and Grifols SA

Given the investment horizon of 90 days Avadel Pharmaceuticals PLC is expected to under-perform the Grifols SA. In addition to that, Avadel Pharmaceuticals is 1.48 times more volatile than Grifols SA ADR. It trades about -0.07 of its total potential returns per unit of risk. Grifols SA ADR is currently generating about -0.08 per unit of volatility. If you would invest  924.00  in Grifols SA ADR on September 14, 2024 and sell it today you would lose (164.00) from holding Grifols SA ADR or give up 17.75% of portfolio value over 90 days.

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

Avadel Pharmaceuticals PLC  vs.  Grifols SA ADR

Avadel Pharmaceuticals

Risk-Adjusted Performance

0 of 100

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 January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Grifols SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grifols SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Avadel Pharmaceuticals and Grifols SA

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

The idea behind Avadel Pharmaceuticals PLC and Grifols SA ADR 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.