Correlation Between Establishment Labs and IRIDEX

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

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

Diversification Opportunities for Establishment Labs and IRIDEX

0.66

Correlation Coefficient

Establishment Labs  IRIDEX

Poor diversification

The 3 months correlation between Establishment and IRIDEX is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Establishment Labs Holdings and IRIDEX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IRIDEX and Establishment Labs 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 Establishment Labs Holdings are associated (or correlated) with IRIDEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IRIDEX has no effect on the direction of Establishment Labs i.e., Establishment Labs and IRIDEX go up and down completely randomly.

Pair Corralation between Establishment Labs and IRIDEX

Given the investment horizon of 90 days Establishment Labs Holdings is expected to generate 1.54 times more return on investment than IRIDEX. However, Establishment Labs is 1.54 times more volatile than IRIDEX. It trades about -0.06 of its potential returns per unit of risk. IRIDEX is currently generating about -0.11 per unit of risk. If you would invest  4,589  in Establishment Labs Holdings on November 28, 2024 and sell it today you would lose (1,068) from holding Establishment Labs Holdings or give up 23.27% of portfolio value over 90 days.

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

Establishment Labs Holdings  vs.  IRIDEX

Establishment Labs

Risk-Adjusted Performance

Very Weak

Over the last 90 days Establishment Labs Holdings 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 basic indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

IRIDEX

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Establishment Labs and IRIDEX

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

The idea behind Establishment Labs Holdings and IRIDEX 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.