Correlation Between Collegium Pharmaceutical and Avadel Pharmaceuticals

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

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

Diversification Opportunities for Collegium Pharmaceutical and Avadel Pharmaceuticals

0.48

Correlation Coefficient

Collegium Pharmaceutical  Avadel Pharmaceuticals

Very weak diversification

The 3 months correlation between Collegium and Avadel is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Collegium Pharmaceutical and Avadel Pharmaceuticals PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avadel Pharmaceuticals and Collegium Pharmaceutical 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 Collegium Pharmaceutical are associated (or correlated) with Avadel Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avadel Pharmaceuticals has no effect on the direction of Collegium Pharmaceutical i.e., Collegium Pharmaceutical and Avadel Pharmaceuticals go up and down completely randomly.

Pair Corralation between Collegium Pharmaceutical and Avadel Pharmaceuticals

Given the investment horizon of 90 days Collegium Pharmaceutical is expected to under-perform the Avadel Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, Collegium Pharmaceutical is 1.59 times less risky than Avadel Pharmaceuticals. The stock trades about -0.16 of its potential returns per unit of risk. The Avadel Pharmaceuticals PLC is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,669  in Avadel Pharmaceuticals PLC on February 5, 2024 and sell it today you would earn a total of  213.00  from holding Avadel Pharmaceuticals PLC or generate 12.76% return on investment over 90 days.

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

Collegium Pharmaceutical  vs.  Avadel Pharmaceuticals PLC

Collegium Pharmaceutical

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Collegium Pharmaceutical are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Collegium Pharmaceutical disclosed solid returns over the last few months and may actually be approaching a breakup point.

Avadel Pharmaceuticals

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Collegium Pharmaceutical and Avadel Pharmaceuticals

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

The idea behind Collegium Pharmaceutical and Avadel Pharmaceuticals PLC 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.