Correlation Between Sutro Biopharma and Aerovate Therapeutics

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

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

Diversification Opportunities for Sutro Biopharma and Aerovate Therapeutics

-0.4

Correlation Coefficient

Sutro Biopharma  Aerovate Therapeutics

Very good diversification

The 3 months correlation between Sutro and Aerovate is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Sutro Biopharma and Aerovate Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerovate Therapeutics and Sutro Biopharma 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 Sutro Biopharma 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 Sutro Biopharma i.e., Sutro Biopharma and Aerovate Therapeutics go up and down completely randomly.

Pair Corralation between Sutro Biopharma and Aerovate Therapeutics

Given the investment horizon of 90 days Sutro Biopharma is expected to under-perform the Aerovate Therapeutics. In addition to that, Sutro Biopharma is 4.78 times more volatile than Aerovate Therapeutics. It trades about -0.29 of its total potential returns per unit of risk. Aerovate Therapeutics is currently generating about -0.07 per unit of volatility. If you would invest  269.00  in Aerovate Therapeutics on October 10, 2024 and sell it today you would lose (5.00) from holding Aerovate Therapeutics or give up 1.86% of portfolio value over 90 days.

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

Sutro Biopharma  vs.  Aerovate Therapeutics

Sutro Biopharma

Risk-Adjusted Performance

0 of 100

Very Weak

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

Aerovate Therapeutics

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aerovate Therapeutics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Aerovate Therapeutics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sutro Biopharma and Aerovate Therapeutics

The main advantage of trading using opposite Sutro Biopharma and Aerovate Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sutro Biopharma 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 Sutro Biopharma 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.