Correlation Between Align Technology and Aesthetic Medical

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

By analyzing existing cross correlation between Align Technology and Aesthetic Medical Intl, you can compare the effects of market volatilities on Align Technology and Aesthetic Medical 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 Align Technology with a short position of Aesthetic Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Align Technology and Aesthetic Medical.

Diversification Opportunities for Align Technology and Aesthetic Medical

-0.7

Correlation Coefficient

Align Technology  Aesthetic Medical

Excellent diversification

The 3 months correlation between Align and Aesthetic is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Align Technology and Aesthetic Medical Intl in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aesthetic Medical Intl and Align Technology 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 Align Technology are associated (or correlated) with Aesthetic Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aesthetic Medical Intl has no effect on the direction of Align Technology i.e., Align Technology and Aesthetic Medical go up and down completely randomly.

Pair Corralation between Align Technology and Aesthetic Medical

Given the investment horizon of 90 days Align Technology is expected to generate 0.21 times more return on investment than Aesthetic Medical. However, Align Technology is 4.8 times less risky than Aesthetic Medical. It trades about -0.06 of its potential returns per unit of risk. Aesthetic Medical Intl is currently generating about -0.02 per unit of risk. If you would invest  31,688  in Align Technology on January 24, 2024 and sell it today you would lose (1,606) from holding Align Technology or give up 5.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	97.62%
Values	Daily Returns

Align Technology  vs.  Aesthetic Medical Intl

Align Technology

Risk-Adjusted Performance

10 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Align Technology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Align Technology displayed solid returns over the last few months and may actually be approaching a breakup point.

Aesthetic Medical Intl

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aesthetic Medical Intl has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in May 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Align Technology and Aesthetic Medical

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

The idea behind Align Technology and Aesthetic Medical Intl 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.