Correlation Between Biomea Fusion and Madrigal Pharmaceuticals

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

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

Diversification Opportunities for Biomea Fusion and Madrigal Pharmaceuticals

-0.56

Correlation Coefficient

Biomea Fusion  Madrigal Pharmaceuticals

Excellent diversification

The 3 months correlation between Biomea and Madrigal is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Biomea Fusion and Madrigal Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madrigal Pharmaceuticals and Biomea Fusion 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 Biomea Fusion are associated (or correlated) with Madrigal Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madrigal Pharmaceuticals has no effect on the direction of Biomea Fusion i.e., Biomea Fusion and Madrigal Pharmaceuticals go up and down completely randomly.

Pair Corralation between Biomea Fusion and Madrigal Pharmaceuticals

Given the investment horizon of 90 days Biomea Fusion is expected to under-perform the Madrigal Pharmaceuticals. In addition to that, Biomea Fusion is 3.44 times more volatile than Madrigal Pharmaceuticals. It trades about -0.17 of its total potential returns per unit of risk. Madrigal Pharmaceuticals is currently generating about 0.17 per unit of volatility. If you would invest  31,277  in Madrigal Pharmaceuticals on October 11, 2024 and sell it today you would earn a total of  2,062  from holding Madrigal Pharmaceuticals or generate 6.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Biomea Fusion  vs.  Madrigal Pharmaceuticals

Biomea Fusion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Biomea Fusion 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 technical and fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Madrigal Pharmaceuticals

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Madrigal Pharmaceuticals are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain technical and fundamental indicators, Madrigal Pharmaceuticals disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Biomea Fusion and Madrigal Pharmaceuticals

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

The idea behind Biomea Fusion and Madrigal 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.