Correlation Between Michman Basad and Sofwave Medical

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

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

Diversification Opportunities for Michman Basad and Sofwave Medical

0.41

Correlation Coefficient

Michman Basad  Sofwave Medical

Very weak diversification

The 3 months correlation between Michman and Sofwave is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Michman Basad and Sofwave Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sofwave Medical and Michman Basad 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 Michman Basad are associated (or correlated) with Sofwave Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sofwave Medical has no effect on the direction of Michman Basad i.e., Michman Basad and Sofwave Medical go up and down completely randomly.

Pair Corralation between Michman Basad and Sofwave Medical

Assuming the 90 days trading horizon Michman Basad is expected to generate 7.37 times less return on investment than Sofwave Medical. But when comparing it to its historical volatility, Michman Basad is 2.56 times less risky than Sofwave Medical. It trades about 0.02 of its potential returns per unit of risk. Sofwave Medical is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  84,640  in Sofwave Medical on September 3, 2024 and sell it today you would earn a total of  87,260  from holding Sofwave Medical or generate 103.1% return on investment over 90 days.

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

Michman Basad  vs.  Sofwave Medical

Michman Basad

Risk-Adjusted Performance

36 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Michman Basad are ranked lower than 36 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Michman Basad sustained solid returns over the last few months and may actually be approaching a breakup point.

Sofwave Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sofwave Medical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sofwave Medical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Michman Basad and Sofwave Medical

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

The idea behind Michman Basad and Sofwave Medical 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.