Correlation Between Hexcel and Alkermes Plc

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

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

Diversification Opportunities for Hexcel and Alkermes Plc

0.8

Correlation Coefficient

Hexcel  Alkermes Plc

Very poor diversification

The 3 months correlation between Hexcel and Alkermes is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Hexcel and Alkermes Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alkermes Plc and Hexcel 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 Hexcel are associated (or correlated) with Alkermes Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alkermes Plc has no effect on the direction of Hexcel i.e., Hexcel and Alkermes Plc go up and down completely randomly.

Pair Corralation between Hexcel and Alkermes Plc

Considering the 90-day investment horizon Hexcel is expected to under-perform the Alkermes Plc. In addition to that, Hexcel is 1.63 times more volatile than Alkermes Plc. It trades about -0.2 of its total potential returns per unit of risk. Alkermes Plc is currently generating about -0.26 per unit of volatility. If you would invest  2,731  in Alkermes Plc on January 25, 2024 and sell it today you would lose (266.00) from holding Alkermes Plc or give up 9.74% of portfolio value over 90 days.

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

Hexcel  vs.  Alkermes Plc

Hexcel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hexcel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Hexcel is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Alkermes Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alkermes Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's forward-looking signals remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Hexcel and Alkermes Plc

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

The idea behind Hexcel and Alkermes Plc 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.