Correlation Between Aerovate Therapeutics and PayPal Holdings

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

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

Diversification Opportunities for Aerovate Therapeutics and PayPal Holdings

0.76

Correlation Coefficient

Aerovate Therapeutics  PayPal Holdings

Poor diversification

The 3 months correlation between Aerovate and PayPal is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Aerovate Therapeutics and PayPal Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PayPal Holdings and Aerovate 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 Aerovate Therapeutics are associated (or correlated) with PayPal Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PayPal Holdings has no effect on the direction of Aerovate Therapeutics i.e., Aerovate Therapeutics and PayPal Holdings go up and down completely randomly.

Pair Corralation between Aerovate Therapeutics and PayPal Holdings

Given the investment horizon of 90 days Aerovate Therapeutics is expected to under-perform the PayPal Holdings. In addition to that, Aerovate Therapeutics is 4.45 times more volatile than PayPal Holdings. It trades about -0.02 of its total potential returns per unit of risk. PayPal Holdings is currently generating about 0.12 per unit of volatility. If you would invest  6,410  in PayPal Holdings on September 13, 2024 and sell it today you would earn a total of  2,530  from holding PayPal Holdings or generate 39.47% return on investment over 90 days.

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

Aerovate Therapeutics  vs.  PayPal Holdings

Aerovate Therapeutics

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aerovate Therapeutics are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Aerovate Therapeutics exhibited solid returns over the last few months and may actually be approaching a breakup point.

PayPal Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PayPal Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, PayPal Holdings disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aerovate Therapeutics and PayPal Holdings

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

The idea behind Aerovate Therapeutics and PayPal Holdings 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.