Correlation Between Sera Prognostics and Castle Biosciences

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

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

Diversification Opportunities for Sera Prognostics and Castle Biosciences

0.42

Correlation Coefficient

Sera Prognostics  Castle Biosciences

Very weak diversification

The 3 months correlation between Sera and Castle is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Sera Prognostics and Castle Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Castle Biosciences and Sera Prognostics 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 Sera Prognostics 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 Sera Prognostics i.e., Sera Prognostics and Castle Biosciences go up and down completely randomly.

Pair Corralation between Sera Prognostics and Castle Biosciences

Given the investment horizon of 90 days Sera Prognostics is expected to generate 2.69 times less return on investment than Castle Biosciences. In addition to that, Sera Prognostics is 1.58 times more volatile than Castle Biosciences. It trades about 0.01 of its total potential returns per unit of risk. Castle Biosciences is currently generating about 0.03 per unit of volatility. If you would invest  2,918  in Castle Biosciences on September 2, 2024 and sell it today you would earn a total of  110.00  from holding Castle Biosciences or generate 3.77% return on investment over 90 days.

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

Sera Prognostics  vs.  Castle Biosciences

Sera Prognostics

Risk-Adjusted Performance

0 of 100

Very Weak

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

Castle Biosciences

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Castle Biosciences are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Castle Biosciences may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sera Prognostics and Castle Biosciences

The main advantage of trading using opposite Sera Prognostics and Castle Biosciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sera Prognostics 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 Sera Prognostics 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.