Correlation Between Kezar Life and Century Therapeutics

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

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

Diversification Opportunities for Kezar Life and Century Therapeutics

0.48

Correlation Coefficient

Kezar Life  Century Therapeutics

Very weak diversification

The 3 months correlation between Kezar and Century is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Kezar Life Sciences and Century Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Therapeutics and Kezar Life 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 Kezar Life Sciences are associated (or correlated) with Century Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Therapeutics has no effect on the direction of Kezar Life i.e., Kezar Life and Century Therapeutics go up and down completely randomly.

Pair Corralation between Kezar Life and Century Therapeutics

Considering the 90-day investment horizon Kezar Life Sciences is expected to generate 0.56 times more return on investment than Century Therapeutics. However, Kezar Life Sciences is 1.79 times less risky than Century Therapeutics. It trades about 0.11 of its potential returns per unit of risk. Century Therapeutics is currently generating about -0.11 per unit of risk. If you would invest  80.00  in Kezar Life Sciences on February 5, 2024 and sell it today you would earn a total of  6.00  from holding Kezar Life Sciences or generate 7.5% return on investment over 90 days.

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

Kezar Life Sciences  vs.  Century Therapeutics

Kezar Life Sciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kezar Life Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Kezar Life is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Century Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Century Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Kezar Life and Century Therapeutics

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

The idea behind Kezar Life Sciences and Century 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.