Correlation Between Madrigal Pharmaceuticals and Protagonist Therapeutics

Can any of the company-specific risk be diversified away by investing in both Madrigal Pharmaceuticals and Protagonist 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 Protagonist 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 Protagonist Therapeutics, you can compare the effects of market volatilities on Madrigal Pharmaceuticals and Protagonist 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 Protagonist Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madrigal Pharmaceuticals and Protagonist Therapeutics.

Diversification Opportunities for Madrigal Pharmaceuticals and Protagonist Therapeutics

-0.2

Correlation Coefficient

Madrigal Pharmaceuticals  Protagonist Therapeutics

Good diversification

The 3 months correlation between Madrigal and Protagonist is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Madrigal Pharmaceuticals and Protagonist Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Protagonist 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 Protagonist Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Protagonist Therapeutics has no effect on the direction of Madrigal Pharmaceuticals i.e., Madrigal Pharmaceuticals and Protagonist Therapeutics go up and down completely randomly.

Pair Corralation between Madrigal Pharmaceuticals and Protagonist Therapeutics

Given the investment horizon of 90 days Madrigal Pharmaceuticals is expected to generate 1.67 times more return on investment than Protagonist Therapeutics. However, Madrigal Pharmaceuticals is 1.67 times more volatile than Protagonist Therapeutics. It trades about 0.14 of its potential returns per unit of risk. Protagonist Therapeutics is currently generating about 0.06 per unit of risk. If you would invest  23,640  in Madrigal Pharmaceuticals on August 31, 2024 and sell it today you would earn a total of  9,505  from holding Madrigal Pharmaceuticals or generate 40.21% return on investment over 90 days.

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

Madrigal Pharmaceuticals  vs.  Protagonist Therapeutics

Madrigal Pharmaceuticals

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Madrigal Pharmaceuticals are ranked lower than 10 (%) 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.

Protagonist Therapeutics

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Protagonist Therapeutics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady technical and fundamental indicators, Protagonist Therapeutics may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Madrigal Pharmaceuticals and Protagonist Therapeutics

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

The idea behind Madrigal Pharmaceuticals and Protagonist 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.