Correlation Between Aerovate Therapeutics and SMA Solar

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

By analyzing existing cross correlation between Aerovate Therapeutics and SMA Solar Technology, you can compare the effects of market volatilities on Aerovate Therapeutics and SMA Solar 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 SMA Solar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aerovate Therapeutics and SMA Solar.

Diversification Opportunities for Aerovate Therapeutics and SMA Solar

0.27

Correlation Coefficient

Aerovate Therapeutics  SMA Solar

Modest diversification

The 3 months correlation between Aerovate and SMA is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Aerovate Therapeutics and SMA Solar Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMA Solar Technology 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 SMA Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMA Solar Technology has no effect on the direction of Aerovate Therapeutics i.e., Aerovate Therapeutics and SMA Solar go up and down completely randomly.

Pair Corralation between Aerovate Therapeutics and SMA Solar

Given the investment horizon of 90 days Aerovate Therapeutics is expected to under-perform the SMA Solar. But the stock apears to be less risky and, when comparing its historical volatility, Aerovate Therapeutics is 2.08 times less risky than SMA Solar. The stock trades about -0.04 of its potential returns per unit of risk. The SMA Solar Technology is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,514  in SMA Solar Technology on December 27, 2024 and sell it today you would lose (112.00) from holding SMA Solar Technology or give up 7.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	91.8%
Values	Daily Returns

Aerovate Therapeutics  vs.  SMA Solar Technology

Aerovate Therapeutics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aerovate Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Aerovate Therapeutics is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

SMA Solar Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days SMA Solar Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, SMA Solar is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Aerovate Therapeutics and SMA Solar

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

The idea behind Aerovate Therapeutics and SMA Solar Technology 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.