Correlation Between Madrigal Pharmaceuticals and BioXcel Therapeutics

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

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

Diversification Opportunities for Madrigal Pharmaceuticals and BioXcel Therapeutics

-0.25

Correlation Coefficient

Madrigal Pharmaceuticals  BioXcel Therapeutics

Very good diversification

The 3 months correlation between Madrigal and BioXcel is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Madrigal Pharmaceuticals and BioXcel Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BioXcel Therapeutics and Madrigal 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 Madrigal Pharmaceuticals are associated (or correlated) with BioXcel Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BioXcel Therapeutics has no effect on the direction of Madrigal Pharmaceuticals i.e., Madrigal Pharmaceuticals and BioXcel Therapeutics go up and down completely randomly.

Pair Corralation between Madrigal Pharmaceuticals and BioXcel Therapeutics

Given the investment horizon of 90 days Madrigal Pharmaceuticals is expected to generate 0.31 times more return on investment than BioXcel Therapeutics. However, Madrigal Pharmaceuticals is 3.24 times less risky than BioXcel Therapeutics. It trades about -0.17 of its potential returns per unit of risk. BioXcel Therapeutics is currently generating about -0.13 per unit of risk. If you would invest  33,674  in Madrigal Pharmaceuticals on September 27, 2024 and sell it today you would lose (2,484) from holding Madrigal Pharmaceuticals or give up 7.38% of portfolio value over 90 days.

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

Madrigal Pharmaceuticals  vs.  BioXcel Therapeutics

Madrigal Pharmaceuticals

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Madrigal Pharmaceuticals are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain technical and fundamental indicators, Madrigal Pharmaceuticals disclosed solid returns over the last few months and may actually be approaching a breakup point.

BioXcel Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BioXcel Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Madrigal Pharmaceuticals and BioXcel Therapeutics

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

The idea behind Madrigal Pharmaceuticals and BioXcel 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.