Correlation Between Electromed and Establishment Labs

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

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

Diversification Opportunities for Electromed and Establishment Labs

0.76

Correlation Coefficient

Electromed  Establishment Labs

Poor diversification

The 3 months correlation between Electromed and Establishment is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Electromed and Establishment Labs Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Establishment Labs and Electromed 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 Electromed are associated (or correlated) with Establishment Labs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Establishment Labs has no effect on the direction of Electromed i.e., Electromed and Establishment Labs go up and down completely randomly.

Pair Corralation between Electromed and Establishment Labs

Given the investment horizon of 90 days Electromed is expected to under-perform the Establishment Labs. But the stock apears to be less risky and, when comparing its historical volatility, Electromed is 1.79 times less risky than Establishment Labs. The stock trades about -0.73 of its potential returns per unit of risk. The Establishment Labs Holdings is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,104  in Establishment Labs Holdings on January 20, 2024 and sell it today you would earn a total of  153.00  from holding Establishment Labs Holdings or generate 3.0% return on investment over 90 days.

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

Electromed  vs.  Establishment Labs Holdings

Electromed

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Electromed are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Electromed exhibited solid returns over the last few months and may actually be approaching a breakup point.

Establishment Labs

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Establishment Labs Holdings are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Establishment Labs sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Electromed and Establishment Labs

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

The idea behind Electromed and Establishment Labs Holdings 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.