Correlation Between Krystal Biotech and Arrowhead Pharmaceuticals

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

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

Diversification Opportunities for Krystal Biotech and Arrowhead Pharmaceuticals

0.64

Correlation Coefficient

Krystal Biotech  Arrowhead Pharmaceuticals

Poor diversification

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

Pair Corralation between Krystal Biotech and Arrowhead Pharmaceuticals

Given the investment horizon of 90 days Krystal Biotech is expected to generate 5.63 times less return on investment than Arrowhead Pharmaceuticals. But when comparing it to its historical volatility, Krystal Biotech is 1.88 times less risky than Arrowhead Pharmaceuticals. It trades about 0.02 of its potential returns per unit of risk. Arrowhead Pharmaceuticals is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,383  in Arrowhead Pharmaceuticals on August 30, 2024 and sell it today you would earn a total of  232.00  from holding Arrowhead Pharmaceuticals or generate 9.74% return on investment over 90 days.

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

Krystal Biotech  vs.  Arrowhead Pharmaceuticals

Krystal Biotech

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Krystal Biotech are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Krystal Biotech is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Arrowhead Pharmaceuticals

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arrowhead Pharmaceuticals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Arrowhead Pharmaceuticals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Krystal Biotech and Arrowhead Pharmaceuticals

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

The idea behind Krystal Biotech and Arrowhead Pharmaceuticals 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .