Correlation Between ARCA Biopharma and Acer Therapeutics

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

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

Diversification Opportunities for ARCA Biopharma and Acer Therapeutics

0.19

Correlation Coefficient

ARCA Biopharma  Acer Therapeutics

Average diversification

The 3 months correlation between ARCA and Acer is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding ARCA Biopharma and Acer Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acer Therapeutics 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 Acer Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Acer Therapeutics has no effect on the direction of ARCA Biopharma i.e., ARCA Biopharma and Acer Therapeutics go up and down completely randomly.

Pair Corralation between ARCA Biopharma and Acer Therapeutics

Given the investment horizon of 90 days ARCA Biopharma is expected to generate 1.35 times less return on investment than Acer Therapeutics. But when comparing it to its historical volatility, ARCA Biopharma is 2.05 times less risky than Acer Therapeutics. It trades about 0.06 of its potential returns per unit of risk. Acer Therapeutics is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  84.00  in Acer Therapeutics on January 24, 2024 and sell it today you would lose (3.00) from holding Acer Therapeutics or give up 3.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	40.54%
Values	Daily Returns

ARCA Biopharma  vs.  Acer Therapeutics

ARCA Biopharma

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ARCA Biopharma are ranked lower than 11 (%) 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.

Acer Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Acer Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Acer Therapeutics is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with ARCA Biopharma and Acer Therapeutics

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

The idea behind ARCA Biopharma and Acer Therapeutics 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.