Correlation Between Design Therapeutics and Ligand Pharmaceuticals

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

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

Diversification Opportunities for Design Therapeutics and Ligand Pharmaceuticals

0.64

Correlation Coefficient

Design Therapeutics  Ligand Pharmaceuticals

Poor diversification

The 3 months correlation between Design and Ligand is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Design Therapeutics and Ligand Pharmaceuticals Incorpo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ligand Pharmaceuticals and Design 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 Design Therapeutics are associated (or correlated) with Ligand Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ligand Pharmaceuticals has no effect on the direction of Design Therapeutics i.e., Design Therapeutics and Ligand Pharmaceuticals go up and down completely randomly.

Pair Corralation between Design Therapeutics and Ligand Pharmaceuticals

Given the investment horizon of 90 days Design Therapeutics is expected to generate 2.14 times more return on investment than Ligand Pharmaceuticals. However, Design Therapeutics is 2.14 times more volatile than Ligand Pharmaceuticals Incorporated. It trades about 0.11 of its potential returns per unit of risk. Ligand Pharmaceuticals Incorporated is currently generating about 0.12 per unit of risk. If you would invest  473.00  in Design Therapeutics on September 3, 2024 and sell it today you would earn a total of  155.00  from holding Design Therapeutics or generate 32.77% return on investment over 90 days.

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

Design Therapeutics  vs.  Ligand Pharmaceuticals Incorpo

Design Therapeutics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Design Therapeutics are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady technical and fundamental indicators, Design Therapeutics displayed solid returns over the last few months and may actually be approaching a breakup point.

Ligand Pharmaceuticals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ligand Pharmaceuticals Incorporated are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Ligand Pharmaceuticals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Design Therapeutics and Ligand Pharmaceuticals

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

The idea behind Design Therapeutics and Ligand Pharmaceuticals Incorporated 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..