Can any of the company-specific risk be diversified away by investing in both ESSA Pharma and Electromed 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 ESSA Pharma and Electromed into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ESSA Pharma and Electromed, you can compare the effects of market volatilities on ESSA Pharma and Electromed 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 ESSA Pharma with a short position of Electromed. Check out your portfolio center. Please also check ongoing floating volatility patterns of ESSA Pharma and Electromed.
Diversification Opportunities for ESSA Pharma and Electromed
The 3 months correlation between ESSA and Electromed is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Pharma and Electromed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electromed and ESSA Pharma 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 ESSA Pharma are associated (or correlated) with Electromed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electromed has no effect on the direction of ESSA Pharma i.e., ESSA Pharma and Electromed go up and down completely randomly.
Pair Corralation between ESSA Pharma and Electromed
Given the investment horizon of 90 days ESSA Pharma is expected to generate 1.16 times more return on investment than Electromed. However, ESSA Pharma is 1.16 times more volatile than Electromed. It trades about -0.14 of its potential returns per unit of risk. Electromed is currently generating about -0.18 per unit of risk. If you would invest 698.00 in ESSA Pharma on March 6, 2024 and sell it today you would lose (101.00) from holding ESSA Pharma or give up 14.47% of portfolio value over 90 days.
Over the last 90 days ESSA Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
Over the last 90 days Electromed has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Electromed is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.