Correlation Between Avadel Pharmaceuticals and Sea

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

Diversification Opportunities for Avadel Pharmaceuticals and Sea

-0.56

Correlation Coefficient

Avadel Pharmaceuticals  Sea

Excellent diversification

The 3 months correlation between Avadel and Sea is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Avadel Pharmaceuticals PLC and Sea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea 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 Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea has no effect on the direction of Avadel Pharmaceuticals i.e., Avadel Pharmaceuticals and Sea go up and down completely randomly.

Pair Corralation between Avadel Pharmaceuticals and Sea

Given the investment horizon of 90 days Avadel Pharmaceuticals PLC is expected to under-perform the Sea. In addition to that, Avadel Pharmaceuticals is 1.56 times more volatile than Sea. It trades about -0.04 of its total potential returns per unit of risk. Sea is currently generating about 0.1 per unit of volatility. If you would invest  10,939  in Sea on December 23, 2024 and sell it today you would earn a total of  1,668  from holding Sea or generate 15.25% return on investment over 90 days.

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

Avadel Pharmaceuticals PLC  vs.  Sea

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.

Sea

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Avadel Pharmaceuticals and Sea

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

The idea behind Avadel Pharmaceuticals PLC and Sea 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.