Correlation Between Connect Biopharma and Evoke Pharma

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

By analyzing existing cross correlation between Connect Biopharma Holdings and Evoke Pharma, you can compare the effects of market volatilities on Connect Biopharma and Evoke Pharma 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 Connect Biopharma with a short position of Evoke Pharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Connect Biopharma and Evoke Pharma.

Diversification Opportunities for Connect Biopharma and Evoke Pharma

0.14

Correlation Coefficient

Connect Biopharma  Evoke Pharma

Average diversification

The 3 months correlation between Connect and Evoke is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Connect Biopharma Holdings and Evoke Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evoke Pharma and Connect Biopharma 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 Connect Biopharma Holdings are associated (or correlated) with Evoke Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evoke Pharma has no effect on the direction of Connect Biopharma i.e., Connect Biopharma and Evoke Pharma go up and down completely randomly.

Pair Corralation between Connect Biopharma and Evoke Pharma

Given the investment horizon of 90 days Connect Biopharma Holdings is expected to generate 1.09 times more return on investment than Evoke Pharma. However, Connect Biopharma is 1.09 times more volatile than Evoke Pharma. It trades about -0.05 of its potential returns per unit of risk. Evoke Pharma is currently generating about -0.29 per unit of risk. If you would invest  120.00  in Connect Biopharma Holdings on September 5, 2024 and sell it today you would lose (9.00) from holding Connect Biopharma Holdings or give up 7.5% of portfolio value over 90 days.

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

Connect Biopharma Holdings  vs.  Evoke Pharma

Connect Biopharma

Risk-Adjusted Performance

0 of 100

Very Weak

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

Evoke Pharma

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Evoke Pharma are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Evoke Pharma disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Connect Biopharma and Evoke Pharma

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

The idea behind Connect Biopharma Holdings and Evoke Pharma 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.