Correlation Between Reata Pharmaceuticals and Krystal Biotech

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

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

Diversification Opportunities for Reata Pharmaceuticals and Krystal Biotech

0.41

Correlation Coefficient

Reata Pharmaceuticals  Krystal Biotech

Very weak diversification

The 3 months correlation between Reata and Krystal is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Reata Pharmaceuticals and Krystal Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Krystal Biotech and Reata 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 Reata Pharmaceuticals are associated (or correlated) with Krystal Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Krystal Biotech has no effect on the direction of Reata Pharmaceuticals i.e., Reata Pharmaceuticals and Krystal Biotech go up and down completely randomly.

Pair Corralation between Reata Pharmaceuticals and Krystal Biotech

If you would invest  18,678  in Krystal Biotech on August 31, 2024 and sell it today you would earn a total of  1,013  from holding Krystal Biotech or generate 5.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	1.59%
Values	Daily Returns

Reata Pharmaceuticals  vs.  Krystal Biotech

Reata Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reata Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Reata Pharmaceuticals is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Krystal Biotech

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Krystal Biotech are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Krystal Biotech may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Reata Pharmaceuticals and Krystal Biotech

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

The idea behind Reata Pharmaceuticals and Krystal Biotech 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.