Can any of the company-specific risk be diversified away by investing in both Kineta and Addex Therapeutics 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 Kineta and Addex Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kineta Inc and Addex Therapeutics, you can compare the effects of market volatilities on Kineta and Addex Therapeutics 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 Kineta with a short position of Addex Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kineta and Addex Therapeutics.
Diversification Opportunities for Kineta and Addex Therapeutics
The 3 months correlation between Kineta and Addex is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Kineta Inc and Addex Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Addex Therapeutics and Kineta 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 Kineta Inc are associated (or correlated) with Addex Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Addex Therapeutics has no effect on the direction of Kineta i.e., Kineta and Addex Therapeutics go up and down completely randomly.
Pair Corralation between Kineta and Addex Therapeutics
Allowing for the 90-day total investment horizon Kineta Inc is expected to generate 0.94 times more return on investment than Addex Therapeutics. However, Kineta Inc is 1.07 times less risky than Addex Therapeutics. It trades about -0.04 of its potential returns per unit of risk. Addex Therapeutics is currently generating about -0.04 per unit of risk. If you would invest 6,573 in Kineta Inc on July 2, 2023 and sell it today you would lose (6,233) from holding Kineta Inc or give up 94.83% of portfolio value over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Kineta Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kineta sustained solid returns over the last few months and may actually be approaching a breakup point.
Over the last 90 days Addex Therapeutics 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 basic indicators remain very healthy which may send shares a bit higher in October 2023. The recent disarray may also be a sign of long period up-swing for the firm insiders.
The main advantage of trading using opposite Kineta and Addex Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kineta position performs unexpectedly, Addex Therapeutics 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 Addex Therapeutics will offset losses from the drop in Addex Therapeutics' long position.
The idea behind Kineta Inc and Addex Therapeutics 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.
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