Correlation Between Aerovate Therapeutics and Revolution Medicines

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Can any of the company-specific risk be diversified away by investing in both Aerovate Therapeutics and Revolution Medicines 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 Aerovate Therapeutics and Revolution Medicines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aerovate Therapeutics and Revolution Medicines, you can compare the effects of market volatilities on Aerovate Therapeutics and Revolution Medicines 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 Aerovate Therapeutics with a short position of Revolution Medicines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aerovate Therapeutics and Revolution Medicines.

Diversification Opportunities for Aerovate Therapeutics and Revolution Medicines

AerovateRevolutionDiversified AwayAerovateRevolutionDiversified Away100%
0.57
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Aerovate and Revolution is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Aerovate Therapeutics and Revolution Medicines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Revolution Medicines and Aerovate Therapeutics 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 Aerovate Therapeutics are associated (or correlated) with Revolution Medicines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Revolution Medicines has no effect on the direction of Aerovate Therapeutics i.e., Aerovate Therapeutics and Revolution Medicines go up and down completely randomly.

Pair Corralation between Aerovate Therapeutics and Revolution Medicines

Given the investment horizon of 90 days Aerovate Therapeutics is expected to under-perform the Revolution Medicines. But the stock apears to be less risky and, when comparing its historical volatility, Aerovate Therapeutics is 1.44 times less risky than Revolution Medicines. The stock trades about -0.19 of its potential returns per unit of risk. The Revolution Medicines is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  4,092  in Revolution Medicines on November 30, 2024 and sell it today you would lose (184.00) from holding Revolution Medicines or give up 4.5% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Aerovate Therapeutics  vs.  Revolution Medicines

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -30-25-20-15-10-50
JavaScript chart by amCharts 3.21.15AVTE RVMD
       Timeline  
Aerovate Therapeutics 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Aerovate Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb2.352.42.452.52.552.62.652.7
Revolution Medicines 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Revolution Medicines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb4045505560

Aerovate Therapeutics and Revolution Medicines Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.05-2.28-1.52-0.750.00.711.432.142.85 0.060.070.080.090.100.110.12
JavaScript chart by amCharts 3.21.15AVTE RVMD
       Returns  

Pair Trading with Aerovate Therapeutics and Revolution Medicines

The main advantage of trading using opposite Aerovate Therapeutics and Revolution Medicines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aerovate Therapeutics position performs unexpectedly, Revolution Medicines 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 Revolution Medicines will offset losses from the drop in Revolution Medicines' long position.
The idea behind Aerovate Therapeutics and Revolution Medicines 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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