Correlation Between Kronos Bio and Design Therapeutics

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

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

Diversification Opportunities for Kronos Bio and Design Therapeutics

-0.55

Correlation Coefficient

Kronos Bio  Design Therapeutics

Excellent diversification

The 3 months correlation between Kronos and Design is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Kronos Bio and Design Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Design Therapeutics and Kronos Bio 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 Kronos Bio are associated (or correlated) with Design Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Design Therapeutics has no effect on the direction of Kronos Bio i.e., Kronos Bio and Design Therapeutics go up and down completely randomly.

Pair Corralation between Kronos Bio and Design Therapeutics

Given the investment horizon of 90 days Kronos Bio is expected to under-perform the Design Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Kronos Bio is 1.61 times less risky than Design Therapeutics. The stock trades about -0.02 of its potential returns per unit of risk. The Design Therapeutics is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  475.00  in Design Therapeutics on August 30, 2024 and sell it today you would earn a total of  122.00  from holding Design Therapeutics or generate 25.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Kronos Bio  vs.  Design Therapeutics

Kronos Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kronos Bio has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Kronos Bio is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Design Therapeutics

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Design Therapeutics are ranked lower than 7 (%) 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.

Pair Trading with Kronos Bio and Design Therapeutics

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

The idea behind Kronos Bio and Design 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 Anywhere module to track or share privately all of your investments from the convenience of any device.