Correlation Between Aerovate Therapeutics and Xilio Development

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

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

Diversification Opportunities for Aerovate Therapeutics and Xilio Development

0.69

Correlation Coefficient

Aerovate Therapeutics  Xilio Development

Poor diversification

The 3 months correlation between Aerovate and Xilio is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Aerovate Therapeutics and Xilio Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xilio Development 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 Xilio Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xilio Development has no effect on the direction of Aerovate Therapeutics i.e., Aerovate Therapeutics and Xilio Development go up and down completely randomly.

Pair Corralation between Aerovate Therapeutics and Xilio Development

Given the investment horizon of 90 days Aerovate Therapeutics is expected to under-perform the Xilio Development. But the stock apears to be less risky and, when comparing its historical volatility, Aerovate Therapeutics is 6.09 times less risky than Xilio Development. The stock trades about -0.15 of its potential returns per unit of risk. The Xilio Development is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  89.00  in Xilio Development on September 23, 2024 and sell it today you would earn a total of  39.00  from holding Xilio Development or generate 43.82% return on investment over 90 days.

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

Aerovate Therapeutics  vs.  Xilio Development

Aerovate Therapeutics

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aerovate Therapeutics are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Aerovate Therapeutics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Xilio Development

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xilio Development are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, Xilio Development displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aerovate Therapeutics and Xilio Development

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

The idea behind Aerovate Therapeutics and Xilio Development 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.