Correlation Between Axsome Therapeutics and Terns Pharmaceuticals

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

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

Diversification Opportunities for Axsome Therapeutics and Terns Pharmaceuticals

-0.22

Correlation Coefficient

Axsome Therapeutics  Terns Pharmaceuticals

Very good diversification

The 3 months correlation between Axsome and Terns is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Axsome Therapeutics and Terns Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Terns Pharmaceuticals and Axsome 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 Axsome Therapeutics are associated (or correlated) with Terns Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Terns Pharmaceuticals has no effect on the direction of Axsome Therapeutics i.e., Axsome Therapeutics and Terns Pharmaceuticals go up and down completely randomly.

Pair Corralation between Axsome Therapeutics and Terns Pharmaceuticals

Given the investment horizon of 90 days Axsome Therapeutics is expected to generate 1.73 times less return on investment than Terns Pharmaceuticals. But when comparing it to its historical volatility, Axsome Therapeutics is 1.97 times less risky than Terns Pharmaceuticals. It trades about 0.03 of its potential returns per unit of risk. Terns Pharmaceuticals is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  618.00  in Terns Pharmaceuticals on September 3, 2024 and sell it today you would lose (3.00) from holding Terns Pharmaceuticals or give up 0.49% of portfolio value over 90 days.

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

Axsome Therapeutics  vs.  Terns Pharmaceuticals

Axsome Therapeutics

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Axsome Therapeutics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Axsome Therapeutics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Terns Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Terns Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Axsome Therapeutics and Terns Pharmaceuticals

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

The idea behind Axsome Therapeutics and Terns Pharmaceuticals 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..