Correlation Between First Wave and Axcella Health

Can any of the company-specific risk be diversified away by investing in both First Wave and Axcella Health 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 First Wave and Axcella Health into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Wave BioPharma and Axcella Health, you can compare the effects of market volatilities on First Wave and Axcella Health 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 First Wave with a short position of Axcella Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Wave and Axcella Health.

Diversification Opportunities for First Wave and Axcella Health

0.87

Correlation Coefficient

First Wave  Axcella Health

Very poor diversification

The 3 months correlation between First and Axcella is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding First Wave BioPharma and Axcella Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axcella Health and First Wave 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 First Wave BioPharma are associated (or correlated) with Axcella Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axcella Health has no effect on the direction of First Wave i.e., First Wave and Axcella Health go up and down completely randomly.

Pair Corralation between First Wave and Axcella Health

Given the investment horizon of 90 days First Wave BioPharma is expected to under-perform the Axcella Health. In addition to that, First Wave is 1.05 times more volatile than Axcella Health. It trades about -0.18 of its total potential returns per unit of risk. Axcella Health is currently generating about -0.03 per unit of volatility. If you would invest  37.00  in Axcella Health on August 31, 2024 and sell it today you would lose (17.00) from holding Axcella Health or give up 45.95% of portfolio value over 90 days.

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

First Wave BioPharma  vs.  Axcella Health

First Wave BioPharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Wave BioPharma has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, First Wave is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Axcella Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Axcella Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Axcella Health is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Wave and Axcella Health

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

The idea behind First Wave BioPharma and Axcella Health 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.