Correlation Between Passage Bio and Extreme Networks

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

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

Diversification Opportunities for Passage Bio and Extreme Networks

0.55

Correlation Coefficient

Passage Bio  Extreme Networks

Very weak diversification

The 3 months correlation between Passage and Extreme is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Passage Bio and Extreme Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extreme Networks and Passage Bio 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 Passage Bio are associated (or correlated) with Extreme Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extreme Networks has no effect on the direction of Passage Bio i.e., Passage Bio and Extreme Networks go up and down completely randomly.

Pair Corralation between Passage Bio and Extreme Networks

Given the investment horizon of 90 days Passage Bio is expected to generate 4.27 times more return on investment than Extreme Networks. However, Passage Bio is 4.27 times more volatile than Extreme Networks. It trades about 0.04 of its potential returns per unit of risk. Extreme Networks is currently generating about 0.11 per unit of risk. If you would invest  65.00  in Passage Bio on September 21, 2024 and sell it today you would lose (4.00) from holding Passage Bio or give up 6.15% of portfolio value over 90 days.

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

Passage Bio  vs.  Extreme Networks

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.

Extreme Networks

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Extreme Networks are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Extreme Networks reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Passage Bio and Extreme Networks

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

The idea behind Passage Bio and Extreme Networks 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.