Correlation Between Avadel Pharmaceuticals and Incyte

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

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

Diversification Opportunities for Avadel Pharmaceuticals and Incyte

-0.72

Correlation Coefficient

Avadel Pharmaceuticals  Incyte

Pay attention - limited upside

The 3 months correlation between Avadel and Incyte is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Avadel Pharmaceuticals PLC and Incyte in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Incyte and Avadel Pharmaceuticals 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 Avadel Pharmaceuticals PLC are associated (or correlated) with Incyte. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Incyte has no effect on the direction of Avadel Pharmaceuticals i.e., Avadel Pharmaceuticals and Incyte go up and down completely randomly.

Pair Corralation between Avadel Pharmaceuticals and Incyte

Given the investment horizon of 90 days Avadel Pharmaceuticals PLC is expected to generate 5.38 times more return on investment than Incyte. However, Avadel Pharmaceuticals is 5.38 times more volatile than Incyte. It trades about 0.07 of its potential returns per unit of risk. Incyte is currently generating about -0.04 per unit of risk. If you would invest  445.00  in Avadel Pharmaceuticals PLC on January 25, 2024 and sell it today you would earn a total of  1,364  from holding Avadel Pharmaceuticals PLC or generate 306.52% return on investment over 90 days.

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

Avadel Pharmaceuticals PLC  vs.  Incyte

Avadel Pharmaceuticals

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Avadel Pharmaceuticals PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental indicators, Avadel Pharmaceuticals disclosed solid returns over the last few months and may actually be approaching a breakup point.

Incyte

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Incyte has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Avadel Pharmaceuticals and Incyte

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

The idea behind Avadel Pharmaceuticals PLC and Incyte 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.