Correlation Between Cara Therapeutic and Calithera Biosciences

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

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

Diversification Opportunities for Cara Therapeutic and Calithera Biosciences

0.21

Correlation Coefficient

Cara Therapeutic  Calithera Biosciences

Modest diversification

The 3 months correlation between Cara and Calithera is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Cara Therapeutic and Calithera Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Calithera Biosciences and Cara Therapeutic 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 Cara Therapeutic are associated (or correlated) with Calithera Biosciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Calithera Biosciences has no effect on the direction of Cara Therapeutic i.e., Cara Therapeutic and Calithera Biosciences go up and down completely randomly.

Pair Corralation between Cara Therapeutic and Calithera Biosciences

Given the investment horizon of 90 days Cara Therapeutic is expected to under-perform the Calithera Biosciences. But the stock apears to be less risky and, when comparing its historical volatility, Cara Therapeutic is 12.45 times less risky than Calithera Biosciences. The stock trades about -0.08 of its potential returns per unit of risk. The Calithera Biosciences is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  262.00  in Calithera Biosciences on September 13, 2024 and sell it today you would lose (257.00) from holding Calithera Biosciences or give up 98.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	29.09%
Values	Daily Returns

Cara Therapeutic  vs.  Calithera Biosciences

Cara Therapeutic

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cara Therapeutic are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Cara Therapeutic is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Calithera Biosciences

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Cara Therapeutic and Calithera Biosciences

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

The idea behind Cara Therapeutic and Calithera 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.