Correlation Between DiaMedica Therapeutics and Eton Pharmaceuticals

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

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

Diversification Opportunities for DiaMedica Therapeutics and Eton Pharmaceuticals

0.76

Correlation Coefficient

DiaMedica Therapeutics  Eton Pharmaceuticals

Poor diversification

The 3 months correlation between DiaMedica and Eton is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding DiaMedica Therapeutics and Eton Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eton Pharmaceuticals and DiaMedica Therapeutics 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 DiaMedica Therapeutics are associated (or correlated) with Eton Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eton Pharmaceuticals has no effect on the direction of DiaMedica Therapeutics i.e., DiaMedica Therapeutics and Eton Pharmaceuticals go up and down completely randomly.

Pair Corralation between DiaMedica Therapeutics and Eton Pharmaceuticals

Given the investment horizon of 90 days DiaMedica Therapeutics is expected to generate 1.16 times less return on investment than Eton Pharmaceuticals. In addition to that, DiaMedica Therapeutics is 1.49 times more volatile than Eton Pharmaceuticals. It trades about 0.18 of its total potential returns per unit of risk. Eton Pharmaceuticals is currently generating about 0.31 per unit of volatility. If you would invest  332.00  in Eton Pharmaceuticals on September 22, 2024 and sell it today you would earn a total of  925.00  from holding Eton Pharmaceuticals or generate 278.61% return on investment over 90 days.

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

DiaMedica Therapeutics  vs.  Eton Pharmaceuticals

DiaMedica Therapeutics

Risk-Adjusted Performance

12 of 100

Good

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

Eton Pharmaceuticals

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eton Pharmaceuticals are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Eton Pharmaceuticals displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DiaMedica Therapeutics and Eton Pharmaceuticals

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

The idea behind DiaMedica Therapeutics and Eton Pharmaceuticals 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.