Correlation Between DermTech and Equillium

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

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

Diversification Opportunities for DermTech and Equillium

-0.41

Correlation Coefficient

DermTech  Equillium

Very good diversification

The 3 months correlation between DermTech and Equillium is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding DermTech and Equillium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equillium and DermTech 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 DermTech are associated (or correlated) with Equillium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equillium has no effect on the direction of DermTech i.e., DermTech and Equillium go up and down completely randomly.

Pair Corralation between DermTech and Equillium

Given the investment horizon of 90 days DermTech is expected to under-perform the Equillium. But the stock apears to be less risky and, when comparing its historical volatility, DermTech is 1.97 times less risky than Equillium. The stock trades about -0.18 of its potential returns per unit of risk. The Equillium is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  85.00  in Equillium on January 26, 2024 and sell it today you would earn a total of  94.00  from holding Equillium or generate 110.59% return on investment over 90 days.

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

DermTech  vs.  Equillium

DermTech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DermTech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Equillium

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with DermTech and Equillium

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

The idea behind DermTech and Equillium 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.