Correlation Between DiaMedica Therapeutics and Edesa Biotech

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

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

Diversification Opportunities for DiaMedica Therapeutics and Edesa Biotech

0.43

Correlation Coefficient

DiaMedica Therapeutics  Edesa Biotech

Very weak diversification

The 3 months correlation between DiaMedica and Edesa is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding DiaMedica Therapeutics and Edesa Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edesa Biotech and DiaMedica 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 DiaMedica Therapeutics are associated (or correlated) with Edesa Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edesa Biotech has no effect on the direction of DiaMedica Therapeutics i.e., DiaMedica Therapeutics and Edesa Biotech go up and down completely randomly.

Pair Corralation between DiaMedica Therapeutics and Edesa Biotech

Given the investment horizon of 90 days DiaMedica Therapeutics is expected to under-perform the Edesa Biotech. But the stock apears to be less risky and, when comparing its historical volatility, DiaMedica Therapeutics is 1.16 times less risky than Edesa Biotech. The stock trades about -0.11 of its potential returns per unit of risk. The Edesa Biotech is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  432.00  in Edesa Biotech on January 20, 2024 and sell it today you would earn a total of  13.00  from holding Edesa Biotech or generate 3.01% return on investment over 90 days.

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

DiaMedica Therapeutics  vs.  Edesa Biotech

DiaMedica Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DiaMedica Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Edesa Biotech

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Edesa Biotech are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Edesa Biotech is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with DiaMedica Therapeutics and Edesa Biotech

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

The idea behind DiaMedica Therapeutics and Edesa 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.