Correlation Between Kezar Life and Madrigal Pharmaceuticals

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

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

Diversification Opportunities for Kezar Life and Madrigal Pharmaceuticals

-0.11

Correlation Coefficient

Kezar Life  Madrigal Pharmaceuticals

Good diversification

The 3 months correlation between Kezar and Madrigal is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Kezar Life Sciences and Madrigal Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madrigal Pharmaceuticals and Kezar Life 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 Kezar Life Sciences are associated (or correlated) with Madrigal Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madrigal Pharmaceuticals has no effect on the direction of Kezar Life i.e., Kezar Life and Madrigal Pharmaceuticals go up and down completely randomly.

Pair Corralation between Kezar Life and Madrigal Pharmaceuticals

Considering the 90-day investment horizon Kezar Life is expected to generate 1.45 times less return on investment than Madrigal Pharmaceuticals. In addition to that, Kezar Life is 1.39 times more volatile than Madrigal Pharmaceuticals. It trades about 0.06 of its total potential returns per unit of risk. Madrigal Pharmaceuticals is currently generating about 0.12 per unit of volatility. If you would invest  23,316  in Madrigal Pharmaceuticals on September 18, 2024 and sell it today you would earn a total of  7,783  from holding Madrigal Pharmaceuticals or generate 33.38% return on investment over 90 days.

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

Kezar Life Sciences  vs.  Madrigal Pharmaceuticals

Kezar Life Sciences

Risk-Adjusted Performance

4 of 100

Insignificant

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

Madrigal Pharmaceuticals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Madrigal Pharmaceuticals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain technical and fundamental indicators, Madrigal Pharmaceuticals disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kezar Life and Madrigal Pharmaceuticals

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

The idea behind Kezar Life Sciences and Madrigal 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.

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.