Correlation Between CochLear and Electromedical Technologies

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

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

Diversification Opportunities for CochLear and Electromedical Technologies

0.24

Correlation Coefficient

CochLear  Electromedical Technologies

Modest diversification

The 3 months correlation between CochLear and Electromedical is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding CochLear Ltd ADR and Electromedical Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electromedical Technologies and CochLear 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 CochLear Ltd ADR are associated (or correlated) with Electromedical Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electromedical Technologies has no effect on the direction of CochLear i.e., CochLear and Electromedical Technologies go up and down completely randomly.

Pair Corralation between CochLear and Electromedical Technologies

Assuming the 90 days horizon CochLear Ltd ADR is expected to under-perform the Electromedical Technologies. But the pink sheet apears to be less risky and, when comparing its historical volatility, CochLear Ltd ADR is 9.39 times less risky than Electromedical Technologies. The pink sheet trades about -0.11 of its potential returns per unit of risk. The Electromedical Technologies is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  0.03  in Electromedical Technologies on October 8, 2024 and sell it today you would earn a total of  0.01  from holding Electromedical Technologies or generate 33.33% return on investment over 90 days.

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

CochLear Ltd ADR  vs.  Electromedical Technologies

CochLear ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CochLear Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, CochLear is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Electromedical Technologies

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Electromedical Technologies are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting technical and fundamental indicators, Electromedical Technologies exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CochLear and Electromedical Technologies

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

The idea behind CochLear Ltd ADR and Electromedical Technologies 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.