Correlation Between Aerovate Therapeutics and Hitachi Construction

Can any of the company-specific risk be diversified away by investing in both Aerovate Therapeutics and Hitachi Construction 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 Aerovate Therapeutics and Hitachi Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aerovate Therapeutics and Hitachi Construction Machinery, you can compare the effects of market volatilities on Aerovate Therapeutics and Hitachi Construction 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 Aerovate Therapeutics with a short position of Hitachi Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aerovate Therapeutics and Hitachi Construction.

Diversification Opportunities for Aerovate Therapeutics and Hitachi Construction

-0.47

Correlation Coefficient

Aerovate Therapeutics  Hitachi Construction

Very good diversification

The 3 months correlation between Aerovate and Hitachi is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Aerovate Therapeutics and Hitachi Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hitachi Construction and Aerovate Therapeutics 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 Aerovate Therapeutics are associated (or correlated) with Hitachi Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hitachi Construction has no effect on the direction of Aerovate Therapeutics i.e., Aerovate Therapeutics and Hitachi Construction go up and down completely randomly.

Pair Corralation between Aerovate Therapeutics and Hitachi Construction

Given the investment horizon of 90 days Aerovate Therapeutics is expected to generate 1.5 times more return on investment than Hitachi Construction. However, Aerovate Therapeutics is 1.5 times more volatile than Hitachi Construction Machinery. It trades about 0.11 of its potential returns per unit of risk. Hitachi Construction Machinery is currently generating about -0.05 per unit of risk. If you would invest  188.00  in Aerovate Therapeutics on October 20, 2024 and sell it today you would earn a total of  70.00  from holding Aerovate Therapeutics or generate 37.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.04%
Values	Daily Returns

Aerovate Therapeutics  vs.  Hitachi Construction Machinery

Aerovate Therapeutics

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Aerovate Therapeutics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Aerovate Therapeutics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Hitachi Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hitachi Construction Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Aerovate Therapeutics and Hitachi Construction

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

The idea behind Aerovate Therapeutics and Hitachi Construction Machinery 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.