Correlation Between Kezar Life and Puma Biotechnology

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

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

Diversification Opportunities for Kezar Life and Puma Biotechnology

0.3

Correlation Coefficient

Kezar Life  Puma Biotechnology

Weak diversification

The 3 months correlation between Kezar and Puma is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Kezar Life Sciences and Puma Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Puma Biotechnology and Kezar Life 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 Kezar Life Sciences are associated (or correlated) with Puma Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Puma Biotechnology has no effect on the direction of Kezar Life i.e., Kezar Life and Puma Biotechnology go up and down completely randomly.

Pair Corralation between Kezar Life and Puma Biotechnology

Considering the 90-day investment horizon Kezar Life Sciences is expected to generate 1.42 times more return on investment than Puma Biotechnology. However, Kezar Life is 1.42 times more volatile than Puma Biotechnology. It trades about 0.07 of its potential returns per unit of risk. Puma Biotechnology is currently generating about 0.06 per unit of risk. If you would invest  575.00  in Kezar Life Sciences on September 17, 2024 and sell it today you would earn a total of  100.00  from holding Kezar Life Sciences or generate 17.39% return on investment over 90 days.

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

Kezar Life Sciences  vs.  Puma Biotechnology

Kezar Life Sciences

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kezar Life Sciences are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Kezar Life reported solid returns over the last few months and may actually be approaching a breakup point.

Puma Biotechnology

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Puma Biotechnology are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Puma Biotechnology demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kezar Life and Puma Biotechnology

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

The idea behind Kezar Life Sciences and Puma Biotechnology 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.