Correlation Between Madrigal Pharmaceuticals and SAB Biotherapeutics

Can any of the company-specific risk be diversified away by investing in both Madrigal Pharmaceuticals and SAB 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 SAB 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 SAB Biotherapeutics, you can compare the effects of market volatilities on Madrigal Pharmaceuticals and SAB 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 SAB Biotherapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madrigal Pharmaceuticals and SAB Biotherapeutics.

Diversification Opportunities for Madrigal Pharmaceuticals and SAB Biotherapeutics

-0.3

Correlation Coefficient

Madrigal Pharmaceuticals  SAB Biotherapeutics

Very good diversification

The 3 months correlation between Madrigal and SAB is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Madrigal Pharmaceuticals and SAB Biotherapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAB 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 SAB Biotherapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAB Biotherapeutics has no effect on the direction of Madrigal Pharmaceuticals i.e., Madrigal Pharmaceuticals and SAB Biotherapeutics go up and down completely randomly.

Pair Corralation between Madrigal Pharmaceuticals and SAB Biotherapeutics

Given the investment horizon of 90 days Madrigal Pharmaceuticals is expected to generate 2.3 times less return on investment than SAB Biotherapeutics. But when comparing it to its historical volatility, Madrigal Pharmaceuticals is 5.77 times less risky than SAB Biotherapeutics. It trades about 0.06 of its potential returns per unit of risk. SAB Biotherapeutics is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  9.00  in SAB Biotherapeutics on December 20, 2024 and sell it today you would lose (6.49) from holding SAB Biotherapeutics or give up 72.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	91.67%
Values	Daily Returns

Madrigal Pharmaceuticals  vs.  SAB Biotherapeutics

Madrigal Pharmaceuticals

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Madrigal Pharmaceuticals are ranked lower than 4 (%) 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.

SAB Biotherapeutics

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SAB Biotherapeutics are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, SAB Biotherapeutics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Madrigal Pharmaceuticals and SAB Biotherapeutics

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

The idea behind Madrigal Pharmaceuticals and SAB 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.