Correlation Between Eton Pharmaceuticals and Bright Minds

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

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

Diversification Opportunities for Eton Pharmaceuticals and Bright Minds

0.82

Correlation Coefficient

Eton Pharmaceuticals  Bright Minds

Very poor diversification

The 3 months correlation between Eton and Bright is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Eton Pharmaceuticals and Bright Minds Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bright Minds Biosciences and Eton 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 Eton Pharmaceuticals are associated (or correlated) with Bright Minds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bright Minds Biosciences has no effect on the direction of Eton Pharmaceuticals i.e., Eton Pharmaceuticals and Bright Minds go up and down completely randomly.

Pair Corralation between Eton Pharmaceuticals and Bright Minds

Given the investment horizon of 90 days Eton Pharmaceuticals is expected to generate 0.85 times more return on investment than Bright Minds. However, Eton Pharmaceuticals is 1.17 times less risky than Bright Minds. It trades about 0.02 of its potential returns per unit of risk. Bright Minds Biosciences is currently generating about -0.04 per unit of risk. If you would invest  386.00  in Eton Pharmaceuticals on February 21, 2024 and sell it today you would lose (22.00) from holding Eton Pharmaceuticals or give up 5.7% of portfolio value over 90 days.

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

Eton Pharmaceuticals  vs.  Bright Minds Biosciences

Eton Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eton Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Bright Minds Biosciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bright Minds Biosciences has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Eton Pharmaceuticals and Bright Minds

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

The idea behind Eton Pharmaceuticals and Bright Minds Biosciences 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.