Correlation Between Cogent Biosciences and Aerovate Therapeutics

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

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

Diversification Opportunities for Cogent Biosciences and Aerovate Therapeutics

-0.4

Correlation Coefficient

Cogent Biosciences  Aerovate Therapeutics

Very good diversification

The 3 months correlation between Cogent and Aerovate is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Cogent Biosciences and Aerovate Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerovate Therapeutics and Cogent Biosciences 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 Cogent Biosciences are associated (or correlated) with Aerovate Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aerovate Therapeutics has no effect on the direction of Cogent Biosciences i.e., Cogent Biosciences and Aerovate Therapeutics go up and down completely randomly.

Pair Corralation between Cogent Biosciences and Aerovate Therapeutics

Given the investment horizon of 90 days Cogent Biosciences is expected to under-perform the Aerovate Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Cogent Biosciences is 1.04 times less risky than Aerovate Therapeutics. The stock trades about -0.05 of its potential returns per unit of risk. The Aerovate Therapeutics is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  186.00  in Aerovate Therapeutics on September 2, 2024 and sell it today you would earn a total of  77.00  from holding Aerovate Therapeutics or generate 41.4% return on investment over 90 days.

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

Cogent Biosciences  vs.  Aerovate Therapeutics

Cogent Biosciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cogent Biosciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Aerovate Therapeutics

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aerovate Therapeutics are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Aerovate Therapeutics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cogent Biosciences and Aerovate Therapeutics

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

The idea behind Cogent Biosciences and Aerovate Therapeutics 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.