Correlation Between Madrigal Pharmaceuticals and Biomea Fusion

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

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

Diversification Opportunities for Madrigal Pharmaceuticals and Biomea Fusion

-0.56

Correlation Coefficient

Madrigal Pharmaceuticals  Biomea Fusion

Excellent diversification

The 3 months correlation between Madrigal and Biomea is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Madrigal Pharmaceuticals and Biomea Fusion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biomea Fusion 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 Biomea Fusion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biomea Fusion has no effect on the direction of Madrigal Pharmaceuticals i.e., Madrigal Pharmaceuticals and Biomea Fusion go up and down completely randomly.

Pair Corralation between Madrigal Pharmaceuticals and Biomea Fusion

Given the investment horizon of 90 days Madrigal Pharmaceuticals is expected to generate 0.29 times more return on investment than Biomea Fusion. However, Madrigal Pharmaceuticals is 3.44 times less risky than Biomea Fusion. It trades about 0.17 of its potential returns per unit of risk. Biomea Fusion is currently generating about -0.17 per unit of risk. If you would invest  31,277  in Madrigal Pharmaceuticals on October 11, 2024 and sell it today you would earn a total of  2,062  from holding Madrigal Pharmaceuticals or generate 6.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Madrigal Pharmaceuticals  vs.  Biomea Fusion

Madrigal Pharmaceuticals

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Madrigal Pharmaceuticals are ranked lower than 14 (%) 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.

Biomea Fusion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Biomea Fusion has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Madrigal Pharmaceuticals and Biomea Fusion

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

The idea behind Madrigal Pharmaceuticals and Biomea Fusion 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.