Correlation Between ARCA Biopharma and Avantor

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

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

Diversification Opportunities for ARCA Biopharma and Avantor

0.2

Correlation Coefficient

ARCA Biopharma  Avantor

Modest diversification

The 3 months correlation between ARCA and Avantor is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding ARCA Biopharma and Avantor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avantor 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 Avantor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avantor has no effect on the direction of ARCA Biopharma i.e., ARCA Biopharma and Avantor go up and down completely randomly.

Pair Corralation between ARCA Biopharma and Avantor

Given the investment horizon of 90 days ARCA Biopharma is expected to generate 14.09 times more return on investment than Avantor. However, ARCA Biopharma is 14.09 times more volatile than Avantor. It trades about 0.21 of its potential returns per unit of risk. Avantor is currently generating about -0.18 per unit of risk. If you would invest  175.00  in ARCA Biopharma on January 20, 2024 and sell it today you would earn a total of  150.00  from holding ARCA Biopharma or generate 85.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

ARCA Biopharma  vs.  Avantor

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 weak forward indicators, ARCA Biopharma displayed solid returns over the last few months and may actually be approaching a breakup point.

Avantor

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Avantor are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Avantor may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with ARCA Biopharma and Avantor

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

The idea behind ARCA Biopharma and Avantor 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.