Correlation Between Avadel Pharmaceuticals and PLAIDInc

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

Diversification Opportunities for Avadel Pharmaceuticals and PLAIDInc

-0.33

Correlation Coefficient

Avadel Pharmaceuticals  PLAIDInc

Very good diversification

The 3 months correlation between Avadel and PLAIDInc is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Avadel Pharmaceuticals PLC and PLAIDInc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PLAIDInc 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 PLAIDInc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PLAIDInc has no effect on the direction of Avadel Pharmaceuticals i.e., Avadel Pharmaceuticals and PLAIDInc go up and down completely randomly.

Pair Corralation between Avadel Pharmaceuticals and PLAIDInc

Given the investment horizon of 90 days Avadel Pharmaceuticals PLC is expected to under-perform the PLAIDInc. In addition to that, Avadel Pharmaceuticals is 1.31 times more volatile than PLAIDInc. It trades about -0.19 of its total potential returns per unit of risk. PLAIDInc is currently generating about 0.2 per unit of volatility. If you would invest  514.00  in PLAIDInc on October 23, 2024 and sell it today you would earn a total of  96.00  from holding PLAIDInc or generate 18.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

Avadel Pharmaceuticals PLC  vs.  PLAIDInc

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 unsteady performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

PLAIDInc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PLAIDInc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain forward indicators, PLAIDInc reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Avadel Pharmaceuticals and PLAIDInc

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

The idea behind Avadel Pharmaceuticals PLC and PLAIDInc 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.