Correlation Between Tandem Diabetes and DexCom

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

By analyzing existing cross correlation between Tandem Diabetes Care and DexCom Inc, you can compare the effects of market volatilities on Tandem Diabetes and DexCom 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 Tandem Diabetes with a short position of DexCom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tandem Diabetes and DexCom.

Diversification Opportunities for Tandem Diabetes and DexCom

0.75

Correlation Coefficient

Tandem Diabetes  DexCom

Poor diversification

The 3 months correlation between Tandem and DexCom is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Tandem Diabetes Care and DexCom Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DexCom Inc and Tandem Diabetes 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 Tandem Diabetes Care are associated (or correlated) with DexCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DexCom Inc has no effect on the direction of Tandem Diabetes i.e., Tandem Diabetes and DexCom go up and down completely randomly.

Pair Corralation between Tandem Diabetes and DexCom

Given the investment horizon of 90 days Tandem Diabetes Care is expected to generate 2.02 times more return on investment than DexCom. However, Tandem Diabetes is 2.02 times more volatile than DexCom Inc. It trades about 0.17 of its potential returns per unit of risk. DexCom Inc is currently generating about 0.11 per unit of risk. If you would invest  1,575  in Tandem Diabetes Care on February 1, 2024 and sell it today you would earn a total of  2,094  from holding Tandem Diabetes Care or generate 132.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Tandem Diabetes Care  vs.  DexCom Inc

Tandem Diabetes Care

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tandem Diabetes Care are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, Tandem Diabetes displayed solid returns over the last few months and may actually be approaching a breakup point.

DexCom Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DexCom Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, DexCom is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Tandem Diabetes and DexCom

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

The idea behind Tandem Diabetes Care and DexCom Inc 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 CEOs Directory module to screen CEOs from public companies around the world.