Correlation Between Ensign and Shockwave Medical

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

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

Diversification Opportunities for Ensign and Shockwave Medical

-0.04

Correlation Coefficient

Ensign  Shockwave Medical

Good diversification

The 3 months correlation between Ensign and Shockwave is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding The Ensign Group and Shockwave Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shockwave Medical and Ensign 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 The Ensign Group are associated (or correlated) with Shockwave Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shockwave Medical has no effect on the direction of Ensign i.e., Ensign and Shockwave Medical go up and down completely randomly.

Pair Corralation between Ensign and Shockwave Medical

Given the investment horizon of 90 days Ensign is expected to generate 19.1 times less return on investment than Shockwave Medical. But when comparing it to its historical volatility, The Ensign Group is 30.14 times less risky than Shockwave Medical. It trades about 0.08 of its potential returns per unit of risk. Shockwave Medical is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  16,804  in Shockwave Medical on March 11, 2024 and sell it today you would earn a total of  573,487  from holding Shockwave Medical or generate 3412.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

The Ensign Group  vs.  Shockwave Medical

Ensign Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Ensign Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Ensign is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Shockwave Medical

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shockwave Medical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Shockwave Medical showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ensign and Shockwave Medical

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

The idea behind The Ensign Group and Shockwave Medical 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.