Correlation Between AddLife AB and Redsense Medical

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

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

Diversification Opportunities for AddLife AB and Redsense Medical

0.13

Correlation Coefficient

AddLife AB  Redsense Medical

Average diversification

The 3 months correlation between AddLife and Redsense is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding AddLife AB and Redsense Medical AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redsense Medical and AddLife AB 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 AddLife AB are associated (or correlated) with Redsense Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redsense Medical has no effect on the direction of AddLife AB i.e., AddLife AB and Redsense Medical go up and down completely randomly.

Pair Corralation between AddLife AB and Redsense Medical

Assuming the 90 days trading horizon AddLife AB is expected to under-perform the Redsense Medical. But the stock apears to be less risky and, when comparing its historical volatility, AddLife AB is 2.13 times less risky than Redsense Medical. The stock trades about -0.13 of its potential returns per unit of risk. The Redsense Medical AB is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  650.00  in Redsense Medical AB on September 8, 2024 and sell it today you would earn a total of  20.00  from holding Redsense Medical AB or generate 3.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.48%
Values	Daily Returns

AddLife AB  vs.  Redsense Medical AB

AddLife AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AddLife AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Redsense Medical

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Redsense Medical AB are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Redsense Medical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with AddLife AB and Redsense Medical

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

The idea behind AddLife AB and Redsense Medical AB 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.