Correlation Between DiaMedica Therapeutics and Galmed Pharmaceuticals

Can any of the company-specific risk be diversified away by investing in both DiaMedica Therapeutics and Galmed 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 Galmed 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 Galmed Pharmaceuticals, you can compare the effects of market volatilities on DiaMedica Therapeutics and Galmed 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 Galmed Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of DiaMedica Therapeutics and Galmed Pharmaceuticals.

Diversification Opportunities for DiaMedica Therapeutics and Galmed Pharmaceuticals

-0.35

Correlation Coefficient

DiaMedica Therapeutics  Galmed Pharmaceuticals

Very good diversification

The 3 months correlation between DiaMedica and Galmed is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding DiaMedica Therapeutics and Galmed Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Galmed 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 Galmed Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Galmed Pharmaceuticals has no effect on the direction of DiaMedica Therapeutics i.e., DiaMedica Therapeutics and Galmed Pharmaceuticals go up and down completely randomly.

Pair Corralation between DiaMedica Therapeutics and Galmed Pharmaceuticals

Given the investment horizon of 90 days DiaMedica Therapeutics is expected to generate 5.81 times less return on investment than Galmed Pharmaceuticals. But when comparing it to its historical volatility, DiaMedica Therapeutics is 10.77 times less risky than Galmed Pharmaceuticals. It trades about 0.12 of its potential returns per unit of risk. Galmed Pharmaceuticals is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  398.00  in Galmed Pharmaceuticals on September 12, 2024 and sell it today you would lose (110.00) from holding Galmed Pharmaceuticals or give up 27.64% of portfolio value over 90 days.

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

DiaMedica Therapeutics  vs.  Galmed Pharmaceuticals

DiaMedica Therapeutics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DiaMedica Therapeutics are ranked lower than 9 (%) 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.

Galmed Pharmaceuticals

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Galmed Pharmaceuticals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Galmed Pharmaceuticals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DiaMedica Therapeutics and Galmed Pharmaceuticals

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

The idea behind DiaMedica Therapeutics and Galmed 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.