Correlation Between Edgewise Therapeutics and Amylyx Pharmaceuticals

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

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

Diversification Opportunities for Edgewise Therapeutics and Amylyx Pharmaceuticals

0.85

Correlation Coefficient

Edgewise Therapeutics  Amylyx Pharmaceuticals

Very poor diversification

The 3 months correlation between Edgewise and Amylyx is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Edgewise Therapeutics and Amylyx Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amylyx Pharmaceuticals and Edgewise 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 Edgewise Therapeutics are associated (or correlated) with Amylyx Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amylyx Pharmaceuticals has no effect on the direction of Edgewise Therapeutics i.e., Edgewise Therapeutics and Amylyx Pharmaceuticals go up and down completely randomly.

Pair Corralation between Edgewise Therapeutics and Amylyx Pharmaceuticals

Given the investment horizon of 90 days Edgewise Therapeutics is expected to generate 1.38 times less return on investment than Amylyx Pharmaceuticals. In addition to that, Edgewise Therapeutics is 1.33 times more volatile than Amylyx Pharmaceuticals. It trades about 0.16 of its total potential returns per unit of risk. Amylyx Pharmaceuticals is currently generating about 0.29 per unit of volatility. If you would invest  216.00  in Amylyx Pharmaceuticals on September 3, 2024 and sell it today you would earn a total of  338.00  from holding Amylyx Pharmaceuticals or generate 156.48% return on investment over 90 days.

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

Edgewise Therapeutics  vs.  Amylyx Pharmaceuticals

Edgewise Therapeutics

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Edgewise Therapeutics are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Edgewise Therapeutics showed solid returns over the last few months and may actually be approaching a breakup point.

Amylyx Pharmaceuticals

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amylyx Pharmaceuticals are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating essential indicators, Amylyx Pharmaceuticals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Edgewise Therapeutics and Amylyx Pharmaceuticals

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

The idea behind Edgewise Therapeutics and Amylyx 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.