Correlation Between Krystal Biotech and Lifecore Biomedical

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

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

Diversification Opportunities for Krystal Biotech and Lifecore Biomedical

0.03

Correlation Coefficient

Krystal Biotech  Lifecore Biomedical

Significant diversification

The 3 months correlation between Krystal and Lifecore is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Krystal Biotech and Lifecore Biomedical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifecore Biomedical 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 Lifecore Biomedical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifecore Biomedical has no effect on the direction of Krystal Biotech i.e., Krystal Biotech and Lifecore Biomedical go up and down completely randomly.

Pair Corralation between Krystal Biotech and Lifecore Biomedical

Given the investment horizon of 90 days Krystal Biotech is expected to generate 1.18 times less return on investment than Lifecore Biomedical. But when comparing it to its historical volatility, Krystal Biotech is 2.03 times less risky than Lifecore Biomedical. It trades about 0.05 of its potential returns per unit of risk. Lifecore Biomedical is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  700.00  in Lifecore Biomedical on October 11, 2024 and sell it today you would lose (120.00) from holding Lifecore Biomedical or give up 17.14% of portfolio value over 90 days.

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

Krystal Biotech  vs.  Lifecore Biomedical

Krystal Biotech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Krystal Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Lifecore Biomedical

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lifecore Biomedical are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental indicators, Lifecore Biomedical reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Krystal Biotech and Lifecore Biomedical

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

The idea behind Krystal Biotech and Lifecore Biomedical 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.