Correlation Between Karuna Therapeutics and Rafael Holdings

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Can any of the company-specific risk be diversified away by investing in both Karuna Therapeutics and Rafael Holdings 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 Karuna Therapeutics and Rafael Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Karuna Therapeutics and Rafael Holdings Class, you can compare the effects of market volatilities on Karuna Therapeutics and Rafael Holdings 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 Karuna Therapeutics with a short position of Rafael Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Karuna Therapeutics and Rafael Holdings.

Diversification Opportunities for Karuna Therapeutics and Rafael Holdings

-0.32
  Correlation Coefficient

Very good diversification

The 3 months correlation between Karuna and Rafael is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Karuna Therapeutics and Rafael Holdings Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rafael Holdings Class and Karuna Therapeutics 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 Karuna Therapeutics are associated (or correlated) with Rafael Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rafael Holdings Class has no effect on the direction of Karuna Therapeutics i.e., Karuna Therapeutics and Rafael Holdings go up and down completely randomly.

Pair Corralation between Karuna Therapeutics and Rafael Holdings

Given the investment horizon of 90 days Karuna Therapeutics is expected to generate 0.51 times more return on investment than Rafael Holdings. However, Karuna Therapeutics is 1.96 times less risky than Rafael Holdings. It trades about 0.41 of its potential returns per unit of risk. Rafael Holdings Class is currently generating about -0.03 per unit of risk. If you would invest  31,489  in Karuna Therapeutics on December 29, 2023 and sell it today you would earn a total of  1,494  from holding Karuna Therapeutics or generate 4.74% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy72.73%
ValuesDaily Returns

Karuna Therapeutics  vs.  Rafael Holdings Class

 Performance 
       Timeline  
Karuna Therapeutics 

Risk-Adjusted Performance

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Low
 
High
Good
Over the last 90 days Karuna Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Karuna Therapeutics is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
Rafael Holdings Class 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Rafael Holdings Class has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Rafael Holdings is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Karuna Therapeutics and Rafael Holdings Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Karuna Therapeutics and Rafael Holdings

The main advantage of trading using opposite Karuna Therapeutics and Rafael Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Karuna Therapeutics position performs unexpectedly, Rafael Holdings 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 Rafael Holdings will offset losses from the drop in Rafael Holdings' long position.
The idea behind Karuna Therapeutics and Rafael Holdings Class 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.
Check out your portfolio center.
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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

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