Correlation Between Kodiak Sciences and Mustang Bio

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

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

Diversification Opportunities for Kodiak Sciences and Mustang Bio

0.91

Correlation Coefficient

Kodiak Sciences  Mustang Bio

Almost no diversification

The 3 months correlation between Kodiak and Mustang is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Kodiak Sciences and Mustang Bio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mustang Bio and Kodiak Sciences 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 Kodiak Sciences are associated (or correlated) with Mustang Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mustang Bio has no effect on the direction of Kodiak Sciences i.e., Kodiak Sciences and Mustang Bio go up and down completely randomly.

Pair Corralation between Kodiak Sciences and Mustang Bio

Considering the 90-day investment horizon Kodiak Sciences is expected to generate 0.63 times more return on investment than Mustang Bio. However, Kodiak Sciences is 1.59 times less risky than Mustang Bio. It trades about -0.31 of its potential returns per unit of risk. Mustang Bio is currently generating about -0.29 per unit of risk. If you would invest  997.00  in Kodiak Sciences on December 29, 2024 and sell it today you would lose (691.00) from holding Kodiak Sciences or give up 69.31% of portfolio value over 90 days.

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

Kodiak Sciences  vs.  Mustang Bio

Kodiak Sciences

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kodiak Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Mustang Bio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mustang Bio has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Kodiak Sciences and Mustang Bio

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

The idea behind Kodiak Sciences and Mustang Bio 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.