Correlation Between Lexicon Pharmaceuticals and Aldeyra

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

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

Diversification Opportunities for Lexicon Pharmaceuticals and Aldeyra

0.68

Correlation Coefficient

Lexicon Pharmaceuticals  Aldeyra

Poor diversification

The 3 months correlation between Lexicon and Aldeyra is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Lexicon Pharmaceuticals and Aldeyra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aldeyra and Lexicon 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 Lexicon Pharmaceuticals are associated (or correlated) with Aldeyra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aldeyra has no effect on the direction of Lexicon Pharmaceuticals i.e., Lexicon Pharmaceuticals and Aldeyra go up and down completely randomly.

Pair Corralation between Lexicon Pharmaceuticals and Aldeyra

Given the investment horizon of 90 days Lexicon Pharmaceuticals is expected to under-perform the Aldeyra. In addition to that, Lexicon Pharmaceuticals is 1.08 times more volatile than Aldeyra. It trades about -0.43 of its total potential returns per unit of risk. Aldeyra is currently generating about -0.02 per unit of volatility. If you would invest  518.00  in Aldeyra on September 5, 2024 and sell it today you would lose (22.00) from holding Aldeyra or give up 4.25% of portfolio value over 90 days.

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

Lexicon Pharmaceuticals  vs.  Aldeyra

Lexicon Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lexicon 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 fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Aldeyra

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aldeyra has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Lexicon Pharmaceuticals and Aldeyra

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

The idea behind Lexicon Pharmaceuticals and Aldeyra 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.