Correlation Between Castle Biosciences and Natera

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

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

Diversification Opportunities for Castle Biosciences and Natera

0.33

Correlation Coefficient

Castle Biosciences  Natera

Weak diversification

The 3 months correlation between Castle and Natera is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Castle Biosciences and Natera Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natera Inc and Castle Biosciences 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 Castle Biosciences are associated (or correlated) with Natera. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natera Inc has no effect on the direction of Castle Biosciences i.e., Castle Biosciences and Natera go up and down completely randomly.

Pair Corralation between Castle Biosciences and Natera

Given the investment horizon of 90 days Castle Biosciences is expected to generate 1.52 times less return on investment than Natera. But when comparing it to its historical volatility, Castle Biosciences is 1.39 times less risky than Natera. It trades about 0.1 of its potential returns per unit of risk. Natera Inc is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  16,746  in Natera Inc on November 19, 2024 and sell it today you would earn a total of  593.00  from holding Natera Inc or generate 3.54% return on investment over 90 days.

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

Castle Biosciences  vs.  Natera Inc

Castle Biosciences

Risk-Adjusted Performance

Very Weak

Over the last 90 days Castle Biosciences has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Castle Biosciences is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Natera Inc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Natera Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Natera may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Castle Biosciences and Natera

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

The idea behind Castle Biosciences and Natera Inc 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.