Correlation Between MediciNova and Castle Biosciences

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

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

Diversification Opportunities for MediciNova and Castle Biosciences

0.9

Correlation Coefficient

MediciNova  Castle Biosciences

Almost no diversification

The 3 months correlation between MediciNova and Castle is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding MediciNova and Castle Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Castle Biosciences and MediciNova 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 MediciNova are associated (or correlated) with Castle Biosciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Castle Biosciences has no effect on the direction of MediciNova i.e., MediciNova and Castle Biosciences go up and down completely randomly.

Pair Corralation between MediciNova and Castle Biosciences

Given the investment horizon of 90 days MediciNova is expected to under-perform the Castle Biosciences. But the stock apears to be less risky and, when comparing its historical volatility, MediciNova is 1.34 times less risky than Castle Biosciences. The stock trades about -0.2 of its potential returns per unit of risk. The Castle Biosciences is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  2,666  in Castle Biosciences on December 30, 2024 and sell it today you would lose (672.00) from holding Castle Biosciences or give up 25.21% of portfolio value over 90 days.

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

MediciNova  vs.  Castle Biosciences

MediciNova

Risk-Adjusted Performance

Very Weak

Over the last 90 days MediciNova has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Castle Biosciences

Risk-Adjusted Performance

Very Weak

Over the last 90 days Castle Biosciences 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 basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with MediciNova and Castle Biosciences

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

The idea behind MediciNova and Castle Biosciences 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.