Correlation Between Incyte and ACADIA Pharmaceuticals

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

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

Diversification Opportunities for Incyte and ACADIA Pharmaceuticals

0.47

Correlation Coefficient

Incyte  ACADIA Pharmaceuticals

Very weak diversification

The 3 months correlation between Incyte and ACADIA is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Incyte and ACADIA Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ACADIA Pharmaceuticals and Incyte 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 Incyte are associated (or correlated) with ACADIA Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ACADIA Pharmaceuticals has no effect on the direction of Incyte i.e., Incyte and ACADIA Pharmaceuticals go up and down completely randomly.

Pair Corralation between Incyte and ACADIA Pharmaceuticals

Given the investment horizon of 90 days Incyte is expected to generate 1.12 times more return on investment than ACADIA Pharmaceuticals. However, Incyte is 1.12 times more volatile than ACADIA Pharmaceuticals. It trades about 0.09 of its potential returns per unit of risk. ACADIA Pharmaceuticals is currently generating about 0.01 per unit of risk. If you would invest  6,433  in Incyte on September 4, 2024 and sell it today you would earn a total of  891.00  from holding Incyte or generate 13.85% return on investment over 90 days.

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

Incyte  vs.  ACADIA Pharmaceuticals

Incyte

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Incyte are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Incyte showed solid returns over the last few months and may actually be approaching a breakup point.

ACADIA Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ACADIA Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, ACADIA Pharmaceuticals is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Incyte and ACADIA Pharmaceuticals

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

The idea behind Incyte and ACADIA 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.