Correlation Between Krystal Biotech and Royalty Pharma

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

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

Diversification Opportunities for Krystal Biotech and Royalty Pharma

0.59

Correlation Coefficient

Krystal Biotech  Royalty Pharma

Very weak diversification

The 3 months correlation between Krystal and Royalty is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Krystal Biotech and Royalty Pharma Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royalty Pharma Plc 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 Royalty Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royalty Pharma Plc has no effect on the direction of Krystal Biotech i.e., Krystal Biotech and Royalty Pharma go up and down completely randomly.

Pair Corralation between Krystal Biotech and Royalty Pharma

Given the investment horizon of 90 days Krystal Biotech is expected to generate 1.44 times less return on investment than Royalty Pharma. In addition to that, Krystal Biotech is 1.32 times more volatile than Royalty Pharma Plc. It trades about 0.1 of its total potential returns per unit of risk. Royalty Pharma Plc is currently generating about 0.19 per unit of volatility. If you would invest  2,515  in Royalty Pharma Plc on December 29, 2024 and sell it today you would earn a total of  622.00  from holding Royalty Pharma Plc or generate 24.73% return on investment over 90 days.

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

Krystal Biotech  vs.  Royalty Pharma Plc

Krystal Biotech

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Krystal Biotech are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Krystal Biotech unveiled solid returns over the last few months and may actually be approaching a breakup point.

Royalty Pharma Plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Royalty Pharma Plc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Royalty Pharma showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Krystal Biotech and Royalty Pharma

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

The idea behind Krystal Biotech and Royalty Pharma Plc 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.