Correlation Between Effector Therapeutics and Kodiak Sciences

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

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

Diversification Opportunities for Effector Therapeutics and Kodiak Sciences

-0.39

Correlation Coefficient

Effector Therapeutics  Kodiak Sciences

Very good diversification

The 3 months correlation between Effector and Kodiak is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Effector Therapeutics and Kodiak Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kodiak Sciences and Effector Therapeutics 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 Effector Therapeutics are associated (or correlated) with Kodiak Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kodiak Sciences has no effect on the direction of Effector Therapeutics i.e., Effector Therapeutics and Kodiak Sciences go up and down completely randomly.

Pair Corralation between Effector Therapeutics and Kodiak Sciences

Given the investment horizon of 90 days Effector Therapeutics is expected to under-perform the Kodiak Sciences. In addition to that, Effector Therapeutics is 1.47 times more volatile than Kodiak Sciences. It trades about -0.09 of its total potential returns per unit of risk. Kodiak Sciences is currently generating about 0.04 per unit of volatility. If you would invest  679.00  in Kodiak Sciences on September 14, 2024 and sell it today you would earn a total of  158.00  from holding Kodiak Sciences or generate 23.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	71.5%
Values	Daily Returns

Effector Therapeutics  vs.  Kodiak Sciences

Effector Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Effector Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Effector Therapeutics is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Kodiak Sciences

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Kodiak Sciences are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Kodiak Sciences exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Effector Therapeutics and Kodiak Sciences

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

The idea behind Effector Therapeutics and Kodiak 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.

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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..