Correlation Between Madrigal Pharmaceuticals and Krystal Biotech

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

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

Diversification Opportunities for Madrigal Pharmaceuticals and Krystal Biotech

0.35

Correlation Coefficient

Madrigal Pharmaceuticals  Krystal Biotech

Weak diversification

The 3 months correlation between Madrigal and Krystal is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Madrigal Pharmaceuticals and Krystal Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Krystal Biotech 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 Krystal Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Krystal Biotech has no effect on the direction of Madrigal Pharmaceuticals i.e., Madrigal Pharmaceuticals and Krystal Biotech go up and down completely randomly.

Pair Corralation between Madrigal Pharmaceuticals and Krystal Biotech

Given the investment horizon of 90 days Madrigal Pharmaceuticals is expected to generate 1.93 times more return on investment than Krystal Biotech. However, Madrigal Pharmaceuticals is 1.93 times more volatile than Krystal Biotech. It trades about 0.13 of its potential returns per unit of risk. Krystal Biotech is currently generating about 0.05 per unit of risk. If you would invest  23,640  in Madrigal Pharmaceuticals on September 2, 2024 and sell it today you would earn a total of  9,179  from holding Madrigal Pharmaceuticals or generate 38.83% return on investment over 90 days.

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

Madrigal Pharmaceuticals  vs.  Krystal Biotech

Madrigal Pharmaceuticals

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Madrigal Pharmaceuticals are ranked lower than 10 (%) 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.

Krystal Biotech

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Krystal Biotech are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Krystal Biotech may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Madrigal Pharmaceuticals and Krystal Biotech

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

The idea behind Madrigal Pharmaceuticals and Krystal Biotech 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.