Correlation Between ACADIA Pharmaceuticals and Terns Pharmaceuticals

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

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

Diversification Opportunities for ACADIA Pharmaceuticals and Terns Pharmaceuticals

0.6

Correlation Coefficient

ACADIA Pharmaceuticals  Terns Pharmaceuticals

Poor diversification

The 3 months correlation between ACADIA and Terns is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding ACADIA Pharmaceuticals and Terns Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Terns Pharmaceuticals and ACADIA 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 ACADIA Pharmaceuticals are associated (or correlated) with Terns Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Terns Pharmaceuticals has no effect on the direction of ACADIA Pharmaceuticals i.e., ACADIA Pharmaceuticals and Terns Pharmaceuticals go up and down completely randomly.

Pair Corralation between ACADIA Pharmaceuticals and Terns Pharmaceuticals

Given the investment horizon of 90 days ACADIA Pharmaceuticals is expected to under-perform the Terns Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, ACADIA Pharmaceuticals is 2.15 times less risky than Terns Pharmaceuticals. The stock trades about -0.12 of its potential returns per unit of risk. The Terns Pharmaceuticals is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  551.00  in Terns Pharmaceuticals on February 6, 2024 and sell it today you would lose (7.00) from holding Terns Pharmaceuticals or give up 1.27% of portfolio value over 90 days.

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

ACADIA Pharmaceuticals  vs.  Terns Pharmaceuticals

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 fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Terns Pharmaceuticals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Terns Pharmaceuticals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Terns Pharmaceuticals may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with ACADIA Pharmaceuticals and Terns Pharmaceuticals

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

The idea behind ACADIA Pharmaceuticals and Terns 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.