Correlation Between Paragon 28 and Establishment Labs

Can any of the company-specific risk be diversified away by investing in both Paragon 28 and Establishment Labs 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 Paragon 28 and Establishment Labs into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Paragon 28 and Establishment Labs Holdings, you can compare the effects of market volatilities on Paragon 28 and Establishment Labs 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 Paragon 28 with a short position of Establishment Labs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Paragon 28 and Establishment Labs.

Diversification Opportunities for Paragon 28 and Establishment Labs

-0.2

Correlation Coefficient

Paragon 28  Establishment Labs

Good diversification

The 3 months correlation between Paragon and Establishment is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Paragon 28 and Establishment Labs Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Establishment Labs and Paragon 28 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 Paragon 28 are associated (or correlated) with Establishment Labs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Establishment Labs has no effect on the direction of Paragon 28 i.e., Paragon 28 and Establishment Labs go up and down completely randomly.

Pair Corralation between Paragon 28 and Establishment Labs

Considering the 90-day investment horizon Paragon 28 is expected to generate 1.44 times more return on investment than Establishment Labs. However, Paragon 28 is 1.44 times more volatile than Establishment Labs Holdings. It trades about 0.08 of its potential returns per unit of risk. Establishment Labs Holdings is currently generating about 0.05 per unit of risk. If you would invest  820.00  in Paragon 28 on September 3, 2024 and sell it today you would earn a total of  211.00  from holding Paragon 28 or generate 25.73% return on investment over 90 days.

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

Paragon 28  vs.  Establishment Labs Holdings

Paragon 28

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Paragon 28 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Paragon 28 sustained solid returns over the last few months and may actually be approaching a breakup point.

Establishment Labs

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Establishment Labs Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Establishment Labs sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Paragon 28 and Establishment Labs

The main advantage of trading using opposite Paragon 28 and Establishment Labs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Paragon 28 position performs unexpectedly, Establishment Labs 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 Establishment Labs will offset losses from the drop in Establishment Labs' long position.

The idea behind Paragon 28 and Establishment Labs Holdings 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 Global Correlations module to find global opportunities by holding instruments from different markets.