Correlation Between Moderna and Cara Therapeutics

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

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

Diversification Opportunities for Moderna and Cara Therapeutics

-0.49

Correlation Coefficient

Moderna  Cara Therapeutics

Very good diversification

The 3 months correlation between Moderna and Cara is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Moderna and Cara Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cara Therapeutics and Moderna 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 Moderna are associated (or correlated) with Cara Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cara Therapeutics has no effect on the direction of Moderna i.e., Moderna and Cara Therapeutics go up and down completely randomly.

Pair Corralation between Moderna and Cara Therapeutics

Assuming the 90 days horizon Moderna is expected to under-perform the Cara Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Moderna is 2.06 times less risky than Cara Therapeutics. The stock trades about -0.08 of its potential returns per unit of risk. The Cara Therapeutics is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  589.00  in Cara Therapeutics on October 24, 2024 and sell it today you would lose (105.00) from holding Cara Therapeutics or give up 17.83% of portfolio value over 90 days.

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

Moderna  vs.  Cara Therapeutics

Moderna

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Moderna has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Cara Therapeutics

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cara Therapeutics are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cara Therapeutics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Moderna and Cara Therapeutics

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

The idea behind Moderna and Cara 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.

Check out your portfolio center.

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.