Correlation Between Electromed and Establishment Labs

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Can any of the company-specific risk be diversified away by investing in both Electromed and Establishment Labs 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 Electromed and Establishment Labs into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Electromed and Establishment Labs Holdings, you can compare the effects of market volatilities on Electromed and Establishment Labs 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 Electromed with a short position of Establishment Labs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electromed and Establishment Labs.

Diversification Opportunities for Electromed and Establishment Labs

0.81
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Electromed and Establishment is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Electromed and Establishment Labs Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Establishment Labs and Electromed 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 Electromed are associated (or correlated) with Establishment Labs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Establishment Labs has no effect on the direction of Electromed i.e., Electromed and Establishment Labs go up and down completely randomly.

Pair Corralation between Electromed and Establishment Labs

Given the investment horizon of 90 days Electromed is expected to generate 1.15 times more return on investment than Establishment Labs. However, Electromed is 1.15 times more volatile than Establishment Labs Holdings. It trades about 0.25 of its potential returns per unit of risk. Establishment Labs Holdings is currently generating about 0.17 per unit of risk. If you would invest  1,005  in Electromed on December 29, 2023 and sell it today you would earn a total of  636.00  from holding Electromed or generate 63.28% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Electromed  vs.  Establishment Labs Holdings

 Performance 
       Timeline  
Electromed 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Electromed are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal primary indicators, Electromed exhibited solid returns over the last few months and may actually be approaching a breakup point.
Establishment Labs 

Risk-Adjusted Performance

21 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Establishment Labs Holdings are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Establishment Labs sustained solid returns over the last few months and may actually be approaching a breakup point.

Electromed and Establishment Labs Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Electromed and Establishment Labs

The main advantage of trading using opposite Electromed and Establishment Labs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electromed position performs unexpectedly, Establishment Labs 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 Establishment Labs will offset losses from the drop in Establishment Labs' long position.
The idea behind Electromed and Establishment Labs Holdings 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.
Check out your portfolio center.
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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