Correlation Between Avadel Pharmaceuticals and Ares Acquisition

Can any of the company-specific risk be diversified away by investing in both Avadel Pharmaceuticals and Ares Acquisition 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 Ares Acquisition 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 Ares Acquisition, you can compare the effects of market volatilities on Avadel Pharmaceuticals and Ares Acquisition 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 Ares Acquisition. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avadel Pharmaceuticals and Ares Acquisition.

Diversification Opportunities for Avadel Pharmaceuticals and Ares Acquisition

-0.63

Correlation Coefficient

Avadel Pharmaceuticals  Ares Acquisition

Excellent diversification

The 3 months correlation between Avadel and Ares is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Avadel Pharmaceuticals PLC and Ares Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Acquisition 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 Ares Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Acquisition has no effect on the direction of Avadel Pharmaceuticals i.e., Avadel Pharmaceuticals and Ares Acquisition go up and down completely randomly.

Pair Corralation between Avadel Pharmaceuticals and Ares Acquisition

Given the investment horizon of 90 days Avadel Pharmaceuticals PLC is expected to under-perform the Ares Acquisition. In addition to that, Avadel Pharmaceuticals is 38.52 times more volatile than Ares Acquisition. It trades about -0.06 of its total potential returns per unit of risk. Ares Acquisition is currently generating about 0.16 per unit of volatility. If you would invest  1,081  in Ares Acquisition on September 20, 2024 and sell it today you would earn a total of  14.00  from holding Ares Acquisition or generate 1.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Avadel Pharmaceuticals PLC  vs.  Ares Acquisition

Avadel Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avadel Pharmaceuticals PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Ares Acquisition

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Acquisition are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Ares Acquisition is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Avadel Pharmaceuticals and Ares Acquisition

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

The idea behind Avadel Pharmaceuticals PLC and Ares Acquisition 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.