Correlation Between Aerovate Therapeutics and Elanco

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

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

Diversification Opportunities for Aerovate Therapeutics and Elanco

-0.34

Correlation Coefficient

Aerovate Therapeutics  Elanco

Very good diversification

The 3 months correlation between Aerovate and Elanco is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Aerovate Therapeutics and Elanco Animal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elanco Animal Health 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 Elanco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elanco Animal Health has no effect on the direction of Aerovate Therapeutics i.e., Aerovate Therapeutics and Elanco go up and down completely randomly.

Pair Corralation between Aerovate Therapeutics and Elanco

Given the investment horizon of 90 days Aerovate Therapeutics is expected to generate 12.54 times more return on investment than Elanco. However, Aerovate Therapeutics is 12.54 times more volatile than Elanco Animal Health. It trades about 0.14 of its potential returns per unit of risk. Elanco Animal Health is currently generating about -0.12 per unit of risk. If you would invest  191.00  in Aerovate Therapeutics on September 16, 2024 and sell it today you would earn a total of  62.00  from holding Aerovate Therapeutics or generate 32.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.38%
Values	Daily Returns

Aerovate Therapeutics  vs.  Elanco Animal Health

Aerovate Therapeutics

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aerovate Therapeutics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Aerovate Therapeutics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Elanco Animal Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elanco Animal Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Elanco is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aerovate Therapeutics and Elanco

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

The idea behind Aerovate Therapeutics and Elanco Animal Health 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.