Can any of the company-specific risk be diversified away by investing in both LENSAR and Profound 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 LENSAR and Profound Medical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LENSAR Inc and Profound Medical Corp, you can compare the effects of market volatilities on LENSAR and Profound 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 LENSAR with a short position of Profound Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of LENSAR and Profound Medical.
Diversification Opportunities for LENSAR and Profound Medical
The 3 months correlation between LENSAR and Profound is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding LENSAR Inc and Profound Medical Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Profound Medical Corp and LENSAR 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 LENSAR Inc are associated (or correlated) with Profound Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Profound Medical Corp has no effect on the direction of LENSAR i.e., LENSAR and Profound Medical go up and down completely randomly.
Pair Corralation between LENSAR and Profound Medical
Given the investment horizon of 90 days LENSAR Inc is expected to generate 0.84 times more return on investment than Profound Medical. However, LENSAR Inc is 1.19 times less risky than Profound Medical. It trades about 0.48 of its potential returns per unit of risk. Profound Medical Corp is currently generating about 0.03 per unit of risk. If you would invest 321.00 in LENSAR Inc on March 6, 2024 and sell it today you would earn a total of 143.00 from holding LENSAR Inc or generate 44.55% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in LENSAR Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, LENSAR reported solid returns over the last few months and may actually be approaching a breakup point.
Over the last 90 days Profound Medical Corp 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 nearly stable which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.