Correlation Between Aadi Bioscience and ACADIA Pharmaceuticals

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

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

Diversification Opportunities for Aadi Bioscience and ACADIA Pharmaceuticals

-0.61

Correlation Coefficient

Aadi Bioscience  ACADIA Pharmaceuticals

Excellent diversification

The 3 months correlation between Aadi and ACADIA is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Aadi Bioscience and ACADIA Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ACADIA Pharmaceuticals and Aadi Bioscience 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 Aadi Bioscience are associated (or correlated) with ACADIA Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ACADIA Pharmaceuticals has no effect on the direction of Aadi Bioscience i.e., Aadi Bioscience and ACADIA Pharmaceuticals go up and down completely randomly.

Pair Corralation between Aadi Bioscience and ACADIA Pharmaceuticals

Given the investment horizon of 90 days Aadi Bioscience is expected to under-perform the ACADIA Pharmaceuticals. In addition to that, Aadi Bioscience is 2.17 times more volatile than ACADIA Pharmaceuticals. It trades about -0.2 of its total potential returns per unit of risk. ACADIA Pharmaceuticals is currently generating about -0.16 per unit of volatility. If you would invest  1,784  in ACADIA Pharmaceuticals on January 24, 2024 and sell it today you would lose (85.00) from holding ACADIA Pharmaceuticals or give up 4.76% of portfolio value over 90 days.

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

Aadi Bioscience  vs.  ACADIA Pharmaceuticals

Aadi Bioscience

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aadi Bioscience are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental indicators, Aadi Bioscience demonstrated solid returns over the last few months and may actually be approaching a breakup point.

ACADIA Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ACADIA Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Aadi Bioscience and ACADIA Pharmaceuticals

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

The idea behind Aadi Bioscience and ACADIA 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.