Correlation Between Viatris and Aileron Therapeutics

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

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

Diversification Opportunities for Viatris and Aileron Therapeutics

-0.32

Correlation Coefficient

Viatris  Aileron Therapeutics

Very good diversification

The 3 months correlation between Viatris and Aileron is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Viatris and Aileron Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aileron Therapeutics and Viatris 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 Viatris are associated (or correlated) with Aileron Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aileron Therapeutics has no effect on the direction of Viatris i.e., Viatris and Aileron Therapeutics go up and down completely randomly.

Pair Corralation between Viatris and Aileron Therapeutics

Given the investment horizon of 90 days Viatris is expected to generate 1.48 times less return on investment than Aileron Therapeutics. But when comparing it to its historical volatility, Viatris is 2.64 times less risky than Aileron Therapeutics. It trades about 0.08 of its potential returns per unit of risk. Aileron Therapeutics is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  270.00  in Aileron Therapeutics on September 3, 2024 and sell it today you would earn a total of  16.00  from holding Aileron Therapeutics or generate 5.93% return on investment over 90 days.

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

Viatris  vs.  Aileron Therapeutics

Viatris

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Viatris are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Viatris may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Aileron Therapeutics

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Viatris and Aileron Therapeutics

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

The idea behind Viatris and Aileron 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.