Correlation Between Avadel Pharmaceuticals and BBB Foods

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

Diversification Opportunities for Avadel Pharmaceuticals and BBB Foods

0.66

Correlation Coefficient

Avadel Pharmaceuticals  BBB Foods

Poor diversification

The 3 months correlation between Avadel and BBB is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Avadel Pharmaceuticals PLC and BBB Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBB Foods 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 BBB Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBB Foods has no effect on the direction of Avadel Pharmaceuticals i.e., Avadel Pharmaceuticals and BBB Foods go up and down completely randomly.

Pair Corralation between Avadel Pharmaceuticals and BBB Foods

Given the investment horizon of 90 days Avadel Pharmaceuticals PLC is expected to generate 1.05 times more return on investment than BBB Foods. However, Avadel Pharmaceuticals is 1.05 times more volatile than BBB Foods. It trades about 0.08 of its potential returns per unit of risk. BBB Foods is currently generating about 0.08 per unit of risk. If you would invest  1,032  in Avadel Pharmaceuticals PLC on October 12, 2024 and sell it today you would earn a total of  37.00  from holding Avadel Pharmaceuticals PLC or generate 3.59% return on investment over 90 days.

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

Avadel Pharmaceuticals PLC  vs.  BBB Foods

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

BBB Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BBB Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, BBB Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Avadel Pharmaceuticals and BBB Foods

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

The idea behind Avadel Pharmaceuticals PLC and BBB Foods 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.