Correlation Between Avalo Therapeutics and Lumos Pharma

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

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

Diversification Opportunities for Avalo Therapeutics and Lumos Pharma

0.55

Correlation Coefficient

Avalo Therapeutics  Lumos Pharma

Very weak diversification

The 3 months correlation between Avalo and Lumos is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Avalo Therapeutics and Lumos Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lumos Pharma and Avalo 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 Avalo Therapeutics are associated (or correlated) with Lumos Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lumos Pharma has no effect on the direction of Avalo Therapeutics i.e., Avalo Therapeutics and Lumos Pharma go up and down completely randomly.

Pair Corralation between Avalo Therapeutics and Lumos Pharma

Given the investment horizon of 90 days Avalo Therapeutics is expected to generate 5.18 times more return on investment than Lumos Pharma. However, Avalo Therapeutics is 5.18 times more volatile than Lumos Pharma. It trades about 0.03 of its potential returns per unit of risk. Lumos Pharma is currently generating about 0.05 per unit of risk. If you would invest  2,071  in Avalo Therapeutics on September 15, 2024 and sell it today you would lose (1,148) from holding Avalo Therapeutics or give up 55.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.63%
Values	Daily Returns

Avalo Therapeutics  vs.  Lumos Pharma

Avalo Therapeutics

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Avalo Therapeutics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Avalo Therapeutics showed solid returns over the last few months and may actually be approaching a breakup point.

Lumos Pharma

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lumos Pharma are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent primary indicators, Lumos Pharma displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Avalo Therapeutics and Lumos Pharma

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

The idea behind Avalo Therapeutics and Lumos Pharma 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.