Correlation Between SoundHound and Aerovate Therapeutics

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

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

Diversification Opportunities for SoundHound and Aerovate Therapeutics

0.69

Correlation Coefficient

SoundHound  Aerovate Therapeutics

Poor diversification

The 3 months correlation between SoundHound and Aerovate is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding SoundHound AI and Aerovate Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerovate Therapeutics and SoundHound 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 SoundHound AI are associated (or correlated) with Aerovate Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aerovate Therapeutics has no effect on the direction of SoundHound i.e., SoundHound and Aerovate Therapeutics go up and down completely randomly.

Pair Corralation between SoundHound and Aerovate Therapeutics

Given the investment horizon of 90 days SoundHound AI is expected to under-perform the Aerovate Therapeutics. In addition to that, SoundHound is 4.37 times more volatile than Aerovate Therapeutics. It trades about -0.17 of its total potential returns per unit of risk. Aerovate Therapeutics is currently generating about -0.04 per unit of volatility. If you would invest  266.00  in Aerovate Therapeutics on December 30, 2024 and sell it today you would lose (13.00) from holding Aerovate Therapeutics or give up 4.89% of portfolio value over 90 days.

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

SoundHound AI  vs.  Aerovate Therapeutics

SoundHound AI

Risk-Adjusted Performance

Very Weak

Over the last 90 days SoundHound AI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Aerovate Therapeutics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aerovate Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Aerovate Therapeutics is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SoundHound and Aerovate Therapeutics

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

The idea behind SoundHound AI and Aerovate 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 Stocks Directory module to find actively traded stocks across global markets.