Correlation Between Avadel Pharmaceuticals and Park Electrochemical

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

Diversification Opportunities for Avadel Pharmaceuticals and Park Electrochemical

-0.42

Correlation Coefficient

Avadel Pharmaceuticals  Park Electrochemical

Very good diversification

The 3 months correlation between Avadel and Park is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Avadel Pharmaceuticals PLC and Park Electrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Electrochemical 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 Park Electrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Electrochemical has no effect on the direction of Avadel Pharmaceuticals i.e., Avadel Pharmaceuticals and Park Electrochemical go up and down completely randomly.

Pair Corralation between Avadel Pharmaceuticals and Park Electrochemical

Given the investment horizon of 90 days Avadel Pharmaceuticals PLC is expected to under-perform the Park Electrochemical. In addition to that, Avadel Pharmaceuticals is 3.18 times more volatile than Park Electrochemical. It trades about -0.18 of its total potential returns per unit of risk. Park Electrochemical is currently generating about -0.05 per unit of volatility. If you would invest  1,482  in Park Electrochemical on October 9, 2024 and sell it today you would lose (50.00) from holding Park Electrochemical or give up 3.37% of portfolio value over 90 days.

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

Avadel Pharmaceuticals PLC  vs.  Park Electrochemical

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 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.

Park Electrochemical

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Park Electrochemical are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward-looking signals, Park Electrochemical may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Avadel Pharmaceuticals and Park Electrochemical

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

The idea behind Avadel Pharmaceuticals PLC and Park Electrochemical 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 Global Correlations module to find global opportunities by holding instruments from different markets.