Correlation Between Cidara Therapeutics and Heat Oil

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

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

Diversification Opportunities for Cidara Therapeutics and Heat Oil

0.16

Correlation Coefficient

Cidara Therapeutics  Heat Oil

Average diversification

The 6 months correlation between Cidara and Heat is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Cidara Therapeutics and Heat Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heat Oil and Cidara Therapeutics 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 Cidara Therapeutics are associated (or correlated) with Heat Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heat Oil has no effect on the direction of Cidara Therapeutics i.e., Cidara Therapeutics and Heat Oil go up and down completely randomly.

Pair Corralation between Cidara Therapeutics and Heat Oil

Given the investment horizon of 90 days Cidara Therapeutics is expected to under-perform the Heat Oil. In addition to that, Cidara Therapeutics is 4.88 times more volatile than Heat Oil. It trades about -0.08 of its total potential returns per unit of risk. Heat Oil is currently generating about 0.0 per unit of volatility. If you would invest  55,990  in Heat Oil on January 25, 2024 and sell it today you would lose (229.00) from holding Heat Oil or give up 0.41% of portfolio value over 90 days.

Time Period	6 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Cidara Therapeutics  vs.  Heat Oil

Pair Trading with Cidara Therapeutics and Heat Oil

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

The idea behind Cidara Therapeutics and Heat Oil 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.