Correlation Between Passage Bio and ADC Therapeutics

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

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

Diversification Opportunities for Passage Bio and ADC Therapeutics

0.47

Correlation Coefficient

Passage Bio  ADC Therapeutics

Very weak diversification

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

Pair Corralation between Passage Bio and ADC Therapeutics

Given the investment horizon of 90 days Passage Bio is expected to generate 1.5 times more return on investment than ADC Therapeutics. However, Passage Bio is 1.5 times more volatile than ADC Therapeutics SA. It trades about 0.05 of its potential returns per unit of risk. ADC Therapeutics SA is currently generating about -0.06 per unit of risk. If you would invest  70.00  in Passage Bio on August 30, 2024 and sell it today you would earn a total of  5.00  from holding Passage Bio or generate 7.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Passage Bio  vs.  ADC Therapeutics SA

Passage Bio

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Passage Bio are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Passage Bio reported solid returns over the last few months and may actually be approaching a breakup point.

ADC Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ADC Therapeutics SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Passage Bio and ADC Therapeutics

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

The idea behind Passage Bio and ADC Therapeutics SA 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..