Correlation Between BioXcel Therapeutics and Heron Therapeuti

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

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

Diversification Opportunities for BioXcel Therapeutics and Heron Therapeuti

0.31

Correlation Coefficient

BioXcel Therapeutics  Heron Therapeuti

Weak diversification

The 3 months correlation between BioXcel and Heron is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding BioXcel Therapeutics and Heron Therapeuti in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heron Therapeuti and BioXcel 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 BioXcel Therapeutics are associated (or correlated) with Heron Therapeuti. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heron Therapeuti has no effect on the direction of BioXcel Therapeutics i.e., BioXcel Therapeutics and Heron Therapeuti go up and down completely randomly.

Pair Corralation between BioXcel Therapeutics and Heron Therapeuti

Given the investment horizon of 90 days BioXcel Therapeutics is expected to under-perform the Heron Therapeuti. But the stock apears to be less risky and, when comparing its historical volatility, BioXcel Therapeutics is 1.14 times less risky than Heron Therapeuti. The stock trades about -0.29 of its potential returns per unit of risk. The Heron Therapeuti is currently generating about -0.22 of returns per unit of risk over similar time horizon. If you would invest  178.00  in Heron Therapeuti on September 3, 2024 and sell it today you would lose (59.00) from holding Heron Therapeuti or give up 33.15% of portfolio value over 90 days.

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

BioXcel Therapeutics  vs.  Heron Therapeuti

BioXcel Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BioXcel Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Heron Therapeuti

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heron Therapeuti has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with BioXcel Therapeutics and Heron Therapeuti

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

The idea behind BioXcel Therapeutics and Heron Therapeuti 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.