Correlation Between Scholar Rock and Aerovate Therapeutics

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

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

Diversification Opportunities for Scholar Rock and Aerovate Therapeutics

0.69

Correlation Coefficient

Scholar Rock  Aerovate Therapeutics

Poor diversification

The 3 months correlation between Scholar and Aerovate is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Scholar Rock Holding and Aerovate Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerovate Therapeutics and Scholar Rock 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 Scholar Rock Holding 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 Scholar Rock i.e., Scholar Rock and Aerovate Therapeutics go up and down completely randomly.

Pair Corralation between Scholar Rock and Aerovate Therapeutics

Given the investment horizon of 90 days Scholar Rock Holding is expected to generate 1.57 times more return on investment than Aerovate Therapeutics. However, Scholar Rock is 1.57 times more volatile than Aerovate Therapeutics. It trades about 0.23 of its potential returns per unit of risk. Aerovate Therapeutics is currently generating about 0.11 per unit of risk. If you would invest  2,795  in Scholar Rock Holding on September 23, 2024 and sell it today you would earn a total of  1,683  from holding Scholar Rock Holding or generate 60.21% return on investment over 90 days.

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

Scholar Rock Holding  vs.  Aerovate Therapeutics

Scholar Rock Holding

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Scholar Rock Holding are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Scholar Rock disclosed solid returns over the last few months and may actually be approaching a breakup point.

Aerovate Therapeutics

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aerovate Therapeutics are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Aerovate Therapeutics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Scholar Rock and Aerovate Therapeutics

The main advantage of trading using opposite Scholar Rock and Aerovate Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Scholar Rock 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 Scholar Rock Holding 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.