Correlation Between Natera and Castle Biosciences

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

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

Diversification Opportunities for Natera and Castle Biosciences

0.88

Correlation Coefficient

Natera  Castle Biosciences

Very poor diversification

The 3 months correlation between Natera and Castle is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Natera Inc and Castle Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Castle Biosciences and Natera 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 Natera Inc 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 Natera i.e., Natera and Castle Biosciences go up and down completely randomly.

Pair Corralation between Natera and Castle Biosciences

Given the investment horizon of 90 days Natera Inc is expected to generate 0.72 times more return on investment than Castle Biosciences. However, Natera Inc is 1.39 times less risky than Castle Biosciences. It trades about -0.03 of its potential returns per unit of risk. Castle Biosciences is currently generating about -0.1 per unit of risk. If you would invest  15,855  in Natera Inc on December 29, 2024 and sell it today you would lose (1,025) from holding Natera Inc or give up 6.46% of portfolio value over 90 days.

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

Natera Inc  vs.  Castle Biosciences

Natera Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Natera Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Natera is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the 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 Natera and Castle Biosciences

The main advantage of trading using opposite Natera and Castle Biosciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Natera 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 Natera Inc 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.

Check out your portfolio center.

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.