Correlation Between Day One and Avidity Biosciences

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

By analyzing existing cross correlation between Day One Biopharmaceuticals and Avidity Biosciences, you can compare the effects of market volatilities on Day One and Avidity Biosciences 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 Day One with a short position of Avidity Biosciences. Check out your portfolio center. Please also check ongoing floating volatility patterns of Day One and Avidity Biosciences.

Diversification Opportunities for Day One and Avidity Biosciences

0.48

Correlation Coefficient

Day One  Avidity Biosciences

Very weak diversification

The 3 months correlation between Day and Avidity is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Day One Biopharmaceuticals and Avidity Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avidity Biosciences and Day One 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 Day One Biopharmaceuticals are associated (or correlated) with Avidity Biosciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avidity Biosciences has no effect on the direction of Day One i.e., Day One and Avidity Biosciences go up and down completely randomly.

Pair Corralation between Day One and Avidity Biosciences

Given the investment horizon of 90 days Day One Biopharmaceuticals is expected to generate 0.55 times more return on investment than Avidity Biosciences. However, Day One Biopharmaceuticals is 1.81 times less risky than Avidity Biosciences. It trades about -0.12 of its potential returns per unit of risk. Avidity Biosciences is currently generating about -0.11 per unit of risk. If you would invest  1,481  in Day One Biopharmaceuticals on September 5, 2024 and sell it today you would lose (122.00) from holding Day One Biopharmaceuticals or give up 8.24% of portfolio value over 90 days.

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

Day One Biopharmaceuticals  vs.  Avidity Biosciences

Day One Biopharmaceu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Day One Biopharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Day One is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Avidity Biosciences

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Day One and Avidity Biosciences

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

The idea behind Day One Biopharmaceuticals and Avidity Biosciences 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.