Correlation Between Axsome Therapeutics and Aurinia Pharmaceuticals

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

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

Diversification Opportunities for Axsome Therapeutics and Aurinia Pharmaceuticals

0.61

Correlation Coefficient

Axsome Therapeutics  Aurinia Pharmaceuticals

Poor diversification

The 3 months correlation between Axsome and Aurinia is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Axsome Therapeutics and Aurinia Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurinia Pharmaceuticals and Axsome 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 Axsome Therapeutics are associated (or correlated) with Aurinia Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurinia Pharmaceuticals has no effect on the direction of Axsome Therapeutics i.e., Axsome Therapeutics and Aurinia Pharmaceuticals go up and down completely randomly.

Pair Corralation between Axsome Therapeutics and Aurinia Pharmaceuticals

Given the investment horizon of 90 days Axsome Therapeutics is expected to under-perform the Aurinia Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, Axsome Therapeutics is 1.21 times less risky than Aurinia Pharmaceuticals. The stock trades about -0.01 of its potential returns per unit of risk. The Aurinia Pharmaceuticals is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  728.00  in Aurinia Pharmaceuticals on September 27, 2024 and sell it today you would earn a total of  170.00  from holding Aurinia Pharmaceuticals or generate 23.35% return on investment over 90 days.

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

Axsome Therapeutics  vs.  Aurinia Pharmaceuticals

Axsome Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Axsome Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Axsome Therapeutics is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Aurinia Pharmaceuticals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aurinia Pharmaceuticals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Aurinia Pharmaceuticals demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Axsome Therapeutics and Aurinia Pharmaceuticals

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

The idea behind Axsome Therapeutics and Aurinia Pharmaceuticals 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.