Correlation Between Establishment Labs and Neuropace

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

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

Diversification Opportunities for Establishment Labs and Neuropace

0.67

Correlation Coefficient

Establishment Labs  Neuropace

Poor diversification

The 3 months correlation between Establishment and Neuropace is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Establishment Labs Holdings and Neuropace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neuropace and Establishment Labs 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 Establishment Labs Holdings are associated (or correlated) with Neuropace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neuropace has no effect on the direction of Establishment Labs i.e., Establishment Labs and Neuropace go up and down completely randomly.

Pair Corralation between Establishment Labs and Neuropace

Given the investment horizon of 90 days Establishment Labs Holdings is expected to generate 0.94 times more return on investment than Neuropace. However, Establishment Labs Holdings is 1.06 times less risky than Neuropace. It trades about 0.05 of its potential returns per unit of risk. Neuropace is currently generating about -0.01 per unit of risk. If you would invest  4,334  in Establishment Labs Holdings on June 29, 2024 and sell it today you would earn a total of  370.00  from holding Establishment Labs Holdings or generate 8.54% return on investment over 90 days.

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

Establishment Labs Holdings  vs.  Neuropace

Establishment Labs

Risk-Adjusted Performance

4 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Establishment Labs Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Establishment Labs sustained solid returns over the last few months and may actually be approaching a breakup point.

Neuropace

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Neuropace has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Neuropace is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Establishment Labs and Neuropace

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

The idea behind Establishment Labs Holdings and Neuropace 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.