Correlation Between Fortress Biotech and Avenue Therapeutics

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

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

Diversification Opportunities for Fortress Biotech and Avenue Therapeutics

-0.16

Correlation Coefficient

Fortress Biotech  Avenue Therapeutics

Good diversification

The 3 months correlation between Fortress and Avenue is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Fortress Biotech and Avenue Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avenue Therapeutics and Fortress Biotech 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 Fortress Biotech are associated (or correlated) with Avenue Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avenue Therapeutics has no effect on the direction of Fortress Biotech i.e., Fortress Biotech and Avenue Therapeutics go up and down completely randomly.

Pair Corralation between Fortress Biotech and Avenue Therapeutics

Given the investment horizon of 90 days Fortress Biotech is expected to generate 0.88 times more return on investment than Avenue Therapeutics. However, Fortress Biotech is 1.13 times less risky than Avenue Therapeutics. It trades about -0.03 of its potential returns per unit of risk. Avenue Therapeutics is currently generating about -0.08 per unit of risk. If you would invest  1,560  in Fortress Biotech on October 7, 2024 and sell it today you would lose (1,337) from holding Fortress Biotech or give up 85.71% of portfolio value over 90 days.

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

Fortress Biotech  vs.  Avenue Therapeutics

Fortress Biotech

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fortress Biotech are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, Fortress Biotech displayed solid returns over the last few months and may actually be approaching a breakup point.

Avenue Therapeutics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Avenue Therapeutics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Avenue Therapeutics may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Fortress Biotech and Avenue Therapeutics

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

The idea behind Fortress Biotech and Avenue Therapeutics 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.