Correlation Between Madrigal Pharmaceuticals and Atara Biotherapeutics

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

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

Diversification Opportunities for Madrigal Pharmaceuticals and Atara Biotherapeutics

0.85

Correlation Coefficient

Madrigal Pharmaceuticals  Atara Biotherapeutics

Very poor diversification

The 3 months correlation between Madrigal and Atara is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Madrigal Pharmaceuticals and Atara Biotherapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Atara Biotherapeutics and Madrigal Pharmaceuticals 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 Madrigal Pharmaceuticals are associated (or correlated) with Atara Biotherapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Atara Biotherapeutics has no effect on the direction of Madrigal Pharmaceuticals i.e., Madrigal Pharmaceuticals and Atara Biotherapeutics go up and down completely randomly.

Pair Corralation between Madrigal Pharmaceuticals and Atara Biotherapeutics

Given the investment horizon of 90 days Madrigal Pharmaceuticals is expected to generate 0.75 times more return on investment than Atara Biotherapeutics. However, Madrigal Pharmaceuticals is 1.34 times less risky than Atara Biotherapeutics. It trades about 0.12 of its potential returns per unit of risk. Atara Biotherapeutics is currently generating about 0.08 per unit of risk. If you would invest  23,336  in Madrigal Pharmaceuticals on September 17, 2024 and sell it today you would earn a total of  7,771  from holding Madrigal Pharmaceuticals or generate 33.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

Madrigal Pharmaceuticals  vs.  Atara Biotherapeutics

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 inconsistent technical and fundamental indicators, Madrigal Pharmaceuticals disclosed solid returns over the last few months and may actually be approaching a breakup point.

Atara Biotherapeutics

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Atara Biotherapeutics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Atara Biotherapeutics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Madrigal Pharmaceuticals and Atara Biotherapeutics

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

The idea behind Madrigal Pharmaceuticals and Atara Biotherapeutics 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.