Can any of the company-specific risk be diversified away by investing in both Profound Medical and STRATA Skin 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 Profound Medical and STRATA Skin into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Profound Medical Corp and STRATA Skin Sciences, you can compare the effects of market volatilities on Profound Medical and STRATA Skin 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 Profound Medical with a short position of STRATA Skin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Profound Medical and STRATA Skin.
Diversification Opportunities for Profound Medical and STRATA Skin
The 3 months correlation between Profound and STRATA is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Profound Medical Corp and STRATA Skin Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STRATA Skin Sciences and Profound Medical 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 Profound Medical Corp are associated (or correlated) with STRATA Skin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STRATA Skin Sciences has no effect on the direction of Profound Medical i.e., Profound Medical and STRATA Skin go up and down completely randomly.
Pair Corralation between Profound Medical and STRATA Skin
Given the investment horizon of 90 days Profound Medical Corp is expected to generate 0.63 times more return on investment than STRATA Skin. However, Profound Medical Corp is 1.59 times less risky than STRATA Skin. It trades about -0.06 of its potential returns per unit of risk. STRATA Skin Sciences is currently generating about -0.08 per unit of risk. If you would invest 881.00 in Profound Medical Corp on March 6, 2024 and sell it today you would lose (136.00) from holding Profound Medical Corp or give up 15.44% of portfolio value over 90 days.
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.
Over the last 90 days STRATA Skin Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's forward-looking signals remain very healthy which may send shares a bit higher in July 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.