Correlation Between Karuna Therapeutics and Nuvalent

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

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

Diversification Opportunities for Karuna Therapeutics and Nuvalent

0.47

Correlation Coefficient

Karuna Therapeutics  Nuvalent

Very weak diversification

The 3 months correlation between Karuna and Nuvalent is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Karuna Therapeutics and Nuvalent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuvalent and Karuna 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 Karuna Therapeutics are associated (or correlated) with Nuvalent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuvalent has no effect on the direction of Karuna Therapeutics i.e., Karuna Therapeutics and Nuvalent go up and down completely randomly.

Pair Corralation between Karuna Therapeutics and Nuvalent

If you would invest  8,458  in Nuvalent on September 4, 2024 and sell it today you would earn a total of  969.00  from holding Nuvalent or generate 11.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	1.56%
Values	Daily Returns

Karuna Therapeutics  vs.  Nuvalent

Karuna Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Karuna Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Karuna Therapeutics is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Nuvalent

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nuvalent are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Nuvalent disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Karuna Therapeutics and Nuvalent

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

The idea behind Karuna Therapeutics and Nuvalent 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.