Correlation Between ARCA Biopharma and ACADIA Pharmaceuticals

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

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

Diversification Opportunities for ARCA Biopharma and ACADIA Pharmaceuticals

-0.75

Correlation Coefficient

ARCA Biopharma  ACADIA Pharmaceuticals

Pay attention - limited upside

The 3 months correlation between ARCA and ACADIA is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding ARCA Biopharma and ACADIA Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ACADIA Pharmaceuticals and ARCA 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 ARCA Biopharma 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 ARCA Biopharma i.e., ARCA Biopharma and ACADIA Pharmaceuticals go up and down completely randomly.

Pair Corralation between ARCA Biopharma and ACADIA Pharmaceuticals

Given the investment horizon of 90 days ARCA Biopharma is expected to generate 1.1 times more return on investment than ACADIA Pharmaceuticals. However, ARCA Biopharma is 1.1 times more volatile than ACADIA Pharmaceuticals. It trades about 0.16 of its potential returns per unit of risk. ACADIA Pharmaceuticals is currently generating about -0.23 per unit of risk. If you would invest  314.00  in ARCA Biopharma on February 10, 2024 and sell it today you would earn a total of  33.00  from holding ARCA Biopharma or generate 10.51% return on investment over 90 days.

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

ARCA Biopharma  vs.  ACADIA Pharmaceuticals

ARCA Biopharma

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ARCA Biopharma are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, ARCA Biopharma displayed 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 June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with ARCA Biopharma and ACADIA Pharmaceuticals

The main advantage of trading using opposite ARCA Biopharma and ACADIA Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARCA Biopharma 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 ARCA Biopharma 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.