Correlation Between Praxis Precision and Avalo Therapeutics

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

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

Diversification Opportunities for Praxis Precision and Avalo Therapeutics

0.52

Correlation Coefficient

Praxis Precision  Avalo Therapeutics

Very weak diversification

The 3 months correlation between Praxis and Avalo is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Praxis Precision Medicines and Avalo Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avalo Therapeutics and Praxis Precision 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 Praxis Precision Medicines are associated (or correlated) with Avalo Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avalo Therapeutics has no effect on the direction of Praxis Precision i.e., Praxis Precision and Avalo Therapeutics go up and down completely randomly.

Pair Corralation between Praxis Precision and Avalo Therapeutics

Given the investment horizon of 90 days Praxis Precision is expected to generate 1.22 times less return on investment than Avalo Therapeutics. But when comparing it to its historical volatility, Praxis Precision Medicines is 4.53 times less risky than Avalo Therapeutics. It trades about 0.12 of its potential returns per unit of risk. Avalo Therapeutics is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,071  in Avalo Therapeutics on September 15, 2024 and sell it today you would lose (1,148) from holding Avalo Therapeutics or give up 55.43% of portfolio value over 90 days.

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

Praxis Precision Medicines  vs.  Avalo Therapeutics

Praxis Precision Med

Risk-Adjusted Performance

7 of 100

OK

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

Avalo Therapeutics

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Praxis Precision and Avalo Therapeutics

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

The idea behind Praxis Precision Medicines and Avalo 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.

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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.