Correlation Between Longboard Pharmaceuticals and DiaMedica Therapeutics

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

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

Diversification Opportunities for Longboard Pharmaceuticals and DiaMedica Therapeutics

0.88

Correlation Coefficient

Longboard Pharmaceuticals  DiaMedica Therapeutics

Very poor diversification

The 3 months correlation between Longboard and DiaMedica is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Longboard Pharmaceuticals and DiaMedica Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DiaMedica Therapeutics and Longboard Pharmaceuticals 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 Longboard Pharmaceuticals are associated (or correlated) with DiaMedica Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DiaMedica Therapeutics has no effect on the direction of Longboard Pharmaceuticals i.e., Longboard Pharmaceuticals and DiaMedica Therapeutics go up and down completely randomly.

Pair Corralation between Longboard Pharmaceuticals and DiaMedica Therapeutics

Given the investment horizon of 90 days Longboard Pharmaceuticals is expected to generate 42.79 times less return on investment than DiaMedica Therapeutics. But when comparing it to its historical volatility, Longboard Pharmaceuticals is 46.97 times less risky than DiaMedica Therapeutics. It trades about 0.15 of its potential returns per unit of risk. DiaMedica Therapeutics is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  430.00  in DiaMedica Therapeutics on October 26, 2024 and sell it today you would earn a total of  195.00  from holding DiaMedica Therapeutics or generate 45.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	45.76%
Values	Daily Returns

Longboard Pharmaceuticals  vs.  DiaMedica Therapeutics

Longboard Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Longboard Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Longboard Pharmaceuticals is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

DiaMedica Therapeutics

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DiaMedica Therapeutics are ranked lower than 10 (%) 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.

Pair Trading with Longboard Pharmaceuticals and DiaMedica Therapeutics

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

The idea behind Longboard Pharmaceuticals and DiaMedica Therapeutics 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.