Correlation Between Equillium and Adagene

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

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

Diversification Opportunities for Equillium and Adagene

-0.47

Correlation Coefficient

Equillium  Adagene

Very good diversification

The 3 months correlation between Equillium and Adagene is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Equillium and Adagene in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adagene and Equillium 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 Equillium are associated (or correlated) with Adagene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adagene has no effect on the direction of Equillium i.e., Equillium and Adagene go up and down completely randomly.

Pair Corralation between Equillium and Adagene

Allowing for the 90-day total investment horizon Equillium is expected to under-perform the Adagene. But the stock apears to be less risky and, when comparing its historical volatility, Equillium is 1.05 times less risky than Adagene. The stock trades about -0.09 of its potential returns per unit of risk. The Adagene is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  251.00  in Adagene on January 26, 2024 and sell it today you would earn a total of  24.00  from holding Adagene or generate 9.56% return on investment over 90 days.

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

Equillium  vs.  Adagene

Equillium

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Equillium are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Equillium reported solid returns over the last few months and may actually be approaching a breakup point.

Adagene

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adagene has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Equillium and Adagene

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

The idea behind Equillium and Adagene 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.