Correlation Between HCW Biologics and DiaMedica Therapeutics

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

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

Diversification Opportunities for HCW Biologics and DiaMedica Therapeutics

-0.41

Correlation Coefficient

HCW Biologics  DiaMedica Therapeutics

Very good diversification

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

Pair Corralation between HCW Biologics and DiaMedica Therapeutics

Given the investment horizon of 90 days HCW Biologics is expected to under-perform the DiaMedica Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, HCW Biologics is 1.14 times less risky than DiaMedica Therapeutics. The stock trades about -0.18 of its potential returns per unit of risk. The DiaMedica Therapeutics is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  307.00  in DiaMedica Therapeutics on March 7, 2024 and sell it today you would lose (19.00) from holding DiaMedica Therapeutics or give up 6.19% of portfolio value over 90 days.

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

HCW Biologics  vs.  DiaMedica Therapeutics

HCW Biologics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HCW Biologics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain somewhat 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.

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 rather sound basic indicators, DiaMedica Therapeutics is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with HCW Biologics and DiaMedica Therapeutics

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

The idea behind HCW Biologics and DiaMedica Therapeutics 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.