Correlation Between Krystal Biotech and Fate Therapeutics

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

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

Diversification Opportunities for Krystal Biotech and Fate Therapeutics

0.27

Correlation Coefficient

Krystal Biotech  Fate Therapeutics

Modest diversification

The 3 months correlation between Krystal and Fate is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Krystal Biotech and Fate Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fate Therapeutics and Krystal Biotech 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 Krystal Biotech are associated (or correlated) with Fate Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fate Therapeutics has no effect on the direction of Krystal Biotech i.e., Krystal Biotech and Fate Therapeutics go up and down completely randomly.

Pair Corralation between Krystal Biotech and Fate Therapeutics

Given the investment horizon of 90 days Krystal Biotech is expected to generate 0.41 times more return on investment than Fate Therapeutics. However, Krystal Biotech is 2.45 times less risky than Fate Therapeutics. It trades about -0.05 of its potential returns per unit of risk. Fate Therapeutics is currently generating about -0.14 per unit of risk. If you would invest  17,953  in Krystal Biotech on September 25, 2024 and sell it today you would lose (1,870) from holding Krystal Biotech or give up 10.42% of portfolio value over 90 days.

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

Krystal Biotech  vs.  Fate Therapeutics

Krystal Biotech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Krystal Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Fate Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fate Therapeutics 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 rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Krystal Biotech and Fate Therapeutics

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

The idea behind Krystal Biotech and Fate Therapeutics 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.