Correlation Between Rhythm Pharmaceuticals and Amylyx Pharmaceuticals

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

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

Diversification Opportunities for Rhythm Pharmaceuticals and Amylyx Pharmaceuticals

0.73

Correlation Coefficient

Rhythm Pharmaceuticals  Amylyx Pharmaceuticals

Poor diversification

The 3 months correlation between Rhythm and Amylyx is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Rhythm Pharmaceuticals and Amylyx Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amylyx Pharmaceuticals and Rhythm Pharmaceuticals 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 Rhythm Pharmaceuticals are associated (or correlated) with Amylyx Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amylyx Pharmaceuticals has no effect on the direction of Rhythm Pharmaceuticals i.e., Rhythm Pharmaceuticals and Amylyx Pharmaceuticals go up and down completely randomly.

Pair Corralation between Rhythm Pharmaceuticals and Amylyx Pharmaceuticals

Given the investment horizon of 90 days Rhythm Pharmaceuticals is expected to generate 3.15 times less return on investment than Amylyx Pharmaceuticals. But when comparing it to its historical volatility, Rhythm Pharmaceuticals is 1.79 times less risky than Amylyx Pharmaceuticals. It trades about 0.16 of its potential returns per unit of risk. Amylyx Pharmaceuticals is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  216.00  in Amylyx Pharmaceuticals on August 31, 2024 and sell it today you would earn a total of  336.50  from holding Amylyx Pharmaceuticals or generate 155.79% return on investment over 90 days.

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

Rhythm Pharmaceuticals  vs.  Amylyx Pharmaceuticals

Rhythm Pharmaceuticals

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rhythm Pharmaceuticals are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Rhythm Pharmaceuticals displayed solid returns over the last few months and may actually be approaching a breakup point.

Amylyx Pharmaceuticals

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amylyx Pharmaceuticals are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Amylyx Pharmaceuticals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rhythm Pharmaceuticals and Amylyx Pharmaceuticals

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

The idea behind Rhythm Pharmaceuticals and Amylyx 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.

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