Correlation Between Mustang Bio and Adial Pharmaceuticals

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

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

Diversification Opportunities for Mustang Bio and Adial Pharmaceuticals

0.32

Correlation Coefficient

Mustang Bio  Adial Pharmaceuticals

Weak diversification

The 3 months correlation between Mustang and Adial is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Mustang Bio and Adial Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adial Pharmaceuticals and Mustang Bio 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 Mustang Bio are associated (or correlated) with Adial Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adial Pharmaceuticals has no effect on the direction of Mustang Bio i.e., Mustang Bio and Adial Pharmaceuticals go up and down completely randomly.

Pair Corralation between Mustang Bio and Adial Pharmaceuticals

Given the investment horizon of 90 days Mustang Bio is expected to under-perform the Adial Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, Mustang Bio is 1.67 times less risky than Adial Pharmaceuticals. The stock trades about -0.29 of its potential returns per unit of risk. The Adial Pharmaceuticals is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  212.00  in Adial Pharmaceuticals on March 7, 2024 and sell it today you would lose (81.00) from holding Adial Pharmaceuticals or give up 38.21% of portfolio value over 90 days.

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

Mustang Bio  vs.  Adial Pharmaceuticals

Mustang Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mustang Bio 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 forward indicators remain very healthy which may send shares a bit higher in July 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Adial Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adial Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, Adial Pharmaceuticals is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Mustang Bio and Adial Pharmaceuticals

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

The idea behind Mustang Bio and Adial 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.