Correlation Between T2 Biosystems and Eton Pharmaceuticals

Can any of the company-specific risk be diversified away by investing in both T2 Biosystems and Eton Pharmaceuticals 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 T2 Biosystems and Eton Pharmaceuticals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between T2 Biosystems and Eton Pharmaceuticals, you can compare the effects of market volatilities on T2 Biosystems and Eton Pharmaceuticals 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 T2 Biosystems with a short position of Eton Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of T2 Biosystems and Eton Pharmaceuticals.

Diversification Opportunities for T2 Biosystems and Eton Pharmaceuticals

-0.28

Correlation Coefficient

T2 Biosystems  Eton Pharmaceuticals

Very good diversification

The 3 months correlation between TTOO and Eton is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding T2 Biosystems and Eton Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eton Pharmaceuticals and T2 Biosystems 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 T2 Biosystems are associated (or correlated) with Eton Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eton Pharmaceuticals has no effect on the direction of T2 Biosystems i.e., T2 Biosystems and Eton Pharmaceuticals go up and down completely randomly.

Pair Corralation between T2 Biosystems and Eton Pharmaceuticals

Given the investment horizon of 90 days T2 Biosystems is expected to generate 5.35 times more return on investment than Eton Pharmaceuticals. However, T2 Biosystems is 5.35 times more volatile than Eton Pharmaceuticals. It trades about 0.01 of its potential returns per unit of risk. Eton Pharmaceuticals is currently generating about 0.03 per unit of risk. If you would invest  41.00  in T2 Biosystems on December 26, 2024 and sell it today you would lose (23.00) from holding T2 Biosystems or give up 56.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	65.0%
Values	Daily Returns

T2 Biosystems  vs.  Eton Pharmaceuticals

T2 Biosystems

Risk-Adjusted Performance

Very Weak

Over the last 90 days T2 Biosystems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very weak basic indicators, T2 Biosystems may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Eton Pharmaceuticals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eton Pharmaceuticals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Eton Pharmaceuticals may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with T2 Biosystems and Eton Pharmaceuticals

The main advantage of trading using opposite T2 Biosystems and Eton Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if T2 Biosystems position performs unexpectedly, Eton Pharmaceuticals 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 Eton Pharmaceuticals will offset losses from the drop in Eton Pharmaceuticals' long position.

The idea behind T2 Biosystems and Eton Pharmaceuticals 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.