Correlation Between Equillium and Eton Pharmaceuticals

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

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

Diversification Opportunities for Equillium and Eton Pharmaceuticals

-0.57

Correlation Coefficient

Equillium  Eton Pharmaceuticals

Excellent diversification

The 3 months correlation between Equillium and Eton is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Equillium and Eton Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eton Pharmaceuticals and Equillium 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 Equillium are associated (or correlated) with Eton Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eton Pharmaceuticals has no effect on the direction of Equillium i.e., Equillium and Eton Pharmaceuticals go up and down completely randomly.

Pair Corralation between Equillium and Eton Pharmaceuticals

Allowing for the 90-day total investment horizon Equillium is expected to generate 5.0 times less return on investment than Eton Pharmaceuticals. In addition to that, Equillium is 1.05 times more volatile than Eton Pharmaceuticals. It trades about 0.04 of its total potential returns per unit of risk. Eton Pharmaceuticals is currently generating about 0.23 per unit of volatility. If you would invest  867.00  in Eton Pharmaceuticals on October 7, 2024 and sell it today you would earn a total of  433.00  from holding Eton Pharmaceuticals or generate 49.94% return on investment over 90 days.

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

Equillium  vs.  Eton Pharmaceuticals

Equillium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equillium has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Equillium is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Eton Pharmaceuticals

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eton Pharmaceuticals are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Eton Pharmaceuticals displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Equillium and Eton Pharmaceuticals

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

The idea behind Equillium and Eton 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.