Correlation Between Deciphera Pharmaceuticals and Krystal Biotech

Can any of the company-specific risk be diversified away by investing in both Deciphera 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 Deciphera 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 Deciphera Pharmaceuticals LLC and Krystal Biotech, you can compare the effects of market volatilities on Deciphera 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 Deciphera Pharmaceuticals with a short position of Krystal Biotech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deciphera Pharmaceuticals and Krystal Biotech.

Diversification Opportunities for Deciphera Pharmaceuticals and Krystal Biotech

-0.58

Correlation Coefficient

Deciphera Pharmaceuticals  Krystal Biotech

Excellent diversification

The 3 months correlation between Deciphera and Krystal is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Deciphera Pharmaceuticals LLC and Krystal Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Krystal Biotech and Deciphera 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 Deciphera Pharmaceuticals LLC 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 Deciphera Pharmaceuticals i.e., Deciphera Pharmaceuticals and Krystal Biotech go up and down completely randomly.

Pair Corralation between Deciphera Pharmaceuticals and Krystal Biotech

Given the investment horizon of 90 days Deciphera Pharmaceuticals LLC is expected to generate 4.15 times more return on investment than Krystal Biotech. However, Deciphera Pharmaceuticals is 4.15 times more volatile than Krystal Biotech. It trades about 0.1 of its potential returns per unit of risk. Krystal Biotech is currently generating about 0.01 per unit of risk. If you would invest  1,661  in Deciphera Pharmaceuticals LLC on March 4, 2024 and sell it today you would earn a total of  893.00  from holding Deciphera Pharmaceuticals LLC or generate 53.76% return on investment over 90 days.

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

Deciphera Pharmaceuticals LLC  vs.  Krystal Biotech

Deciphera Pharmaceuticals

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deciphera Pharmaceuticals LLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Deciphera Pharmaceuticals demonstrated solid returns over the last few months and may actually be approaching a breakup point.

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 comparatively stable basic indicators, Krystal Biotech is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Deciphera Pharmaceuticals and Krystal Biotech

The main advantage of trading using opposite Deciphera Pharmaceuticals and Krystal Biotech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deciphera 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 Deciphera Pharmaceuticals LLC 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.