Correlation Between Terns Pharmaceuticals and Kezar Life

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

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

Diversification Opportunities for Terns Pharmaceuticals and Kezar Life

0.86

Correlation Coefficient

Terns Pharmaceuticals  Kezar Life

Very poor diversification

The 3 months correlation between Terns and Kezar is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Terns Pharmaceuticals and Kezar Life Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kezar Life Sciences and Terns 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 Terns Pharmaceuticals are associated (or correlated) with Kezar Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kezar Life Sciences has no effect on the direction of Terns Pharmaceuticals i.e., Terns Pharmaceuticals and Kezar Life go up and down completely randomly.

Pair Corralation between Terns Pharmaceuticals and Kezar Life

Given the investment horizon of 90 days Terns Pharmaceuticals is expected to under-perform the Kezar Life. In addition to that, Terns Pharmaceuticals is 1.46 times more volatile than Kezar Life Sciences. It trades about -0.29 of its total potential returns per unit of risk. Kezar Life Sciences is currently generating about -0.07 per unit of volatility. If you would invest  652.00  in Kezar Life Sciences on December 19, 2024 and sell it today you would lose (74.00) from holding Kezar Life Sciences or give up 11.35% of portfolio value over 90 days.

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

Terns Pharmaceuticals  vs.  Kezar Life Sciences

Terns Pharmaceuticals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Terns Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Kezar Life Sciences

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kezar Life Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Terns Pharmaceuticals and Kezar Life

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

The idea behind Terns Pharmaceuticals and Kezar Life Sciences 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.