Correlation Between Avadel Pharmaceuticals and Tandem Diabetes

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

Diversification Opportunities for Avadel Pharmaceuticals and Tandem Diabetes

-0.35

Correlation Coefficient

Avadel Pharmaceuticals  Tandem Diabetes

Very good diversification

The 3 months correlation between Avadel and Tandem is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Avadel Pharmaceuticals PLC and Tandem Diabetes Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tandem Diabetes Care 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 Tandem Diabetes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tandem Diabetes Care has no effect on the direction of Avadel Pharmaceuticals i.e., Avadel Pharmaceuticals and Tandem Diabetes go up and down completely randomly.

Pair Corralation between Avadel Pharmaceuticals and Tandem Diabetes

Given the investment horizon of 90 days Avadel Pharmaceuticals PLC is expected to under-perform the Tandem Diabetes. In addition to that, Avadel Pharmaceuticals is 1.61 times more volatile than Tandem Diabetes Care. It trades about -0.14 of its total potential returns per unit of risk. Tandem Diabetes Care is currently generating about 0.16 per unit of volatility. If you would invest  3,042  in Tandem Diabetes Care on October 26, 2024 and sell it today you would earn a total of  614.00  from holding Tandem Diabetes Care or generate 20.18% return on investment over 90 days.

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

Avadel Pharmaceuticals PLC  vs.  Tandem Diabetes Care

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.

Tandem Diabetes Care

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tandem Diabetes Care are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Tandem Diabetes displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Avadel Pharmaceuticals and Tandem Diabetes

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

The idea behind Avadel Pharmaceuticals PLC and Tandem Diabetes Care 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.