Correlation Between IRhythm Technologies and Neuropace

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

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

Diversification Opportunities for IRhythm Technologies and Neuropace

0.5

Correlation Coefficient

IRhythm Technologies  Neuropace

Very weak diversification

The 3 months correlation between IRhythm and Neuropace is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding iRhythm Technologies and Neuropace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neuropace and IRhythm Technologies 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 iRhythm Technologies 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 IRhythm Technologies i.e., IRhythm Technologies and Neuropace go up and down completely randomly.

Pair Corralation between IRhythm Technologies and Neuropace

Given the investment horizon of 90 days iRhythm Technologies is expected to under-perform the Neuropace. But the stock apears to be less risky and, when comparing its historical volatility, iRhythm Technologies is 1.58 times less risky than Neuropace. The stock trades about -0.02 of its potential returns per unit of risk. The Neuropace is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  482.00  in Neuropace on July 28, 2024 and sell it today you would earn a total of  153.00  from holding Neuropace or generate 31.74% return on investment over 90 days.

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

iRhythm Technologies  vs.  Neuropace

iRhythm Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iRhythm Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 unsteady performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in November 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with IRhythm Technologies and Neuropace

The main advantage of trading using opposite IRhythm Technologies and Neuropace positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IRhythm Technologies 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 iRhythm Technologies 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.