Correlation Between EMCORE and Passage Bio

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

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

Diversification Opportunities for EMCORE and Passage Bio

0.13

Correlation Coefficient

EMCORE  Passage Bio

Average diversification

The 3 months correlation between EMCORE and Passage is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding EMCORE and Passage Bio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Passage Bio and EMCORE 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 EMCORE are associated (or correlated) with Passage Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Passage Bio has no effect on the direction of EMCORE i.e., EMCORE and Passage Bio go up and down completely randomly.

Pair Corralation between EMCORE and Passage Bio

Given the investment horizon of 90 days EMCORE is expected to generate 30.11 times less return on investment than Passage Bio. But when comparing it to its historical volatility, EMCORE is 19.54 times less risky than Passage Bio. It trades about 0.07 of its potential returns per unit of risk. Passage Bio is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  51.00  in Passage Bio on September 21, 2024 and sell it today you would earn a total of  10.00  from holding Passage Bio or generate 19.61% return on investment over 90 days.

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

EMCORE  vs.  Passage Bio

EMCORE

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EMCORE are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal forward-looking signals, EMCORE reported solid returns over the last few months and may actually be approaching a breakup point.

Passage Bio

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Passage Bio are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Passage Bio reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EMCORE and Passage Bio

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

The idea behind EMCORE and Passage Bio 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.