Correlation Between Modular Medical and Nortech Systems

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

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

Diversification Opportunities for Modular Medical and Nortech Systems

0.73

Correlation Coefficient

Modular Medical  Nortech Systems

Poor diversification

The 3 months correlation between Modular and Nortech is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Modular Medical and Nortech Systems Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nortech Systems and Modular Medical 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 Modular Medical are associated (or correlated) with Nortech Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nortech Systems has no effect on the direction of Modular Medical i.e., Modular Medical and Nortech Systems go up and down completely randomly.

Pair Corralation between Modular Medical and Nortech Systems

Given the investment horizon of 90 days Modular Medical is expected to under-perform the Nortech Systems. In addition to that, Modular Medical is 1.66 times more volatile than Nortech Systems Incorporated. It trades about -0.14 of its total potential returns per unit of risk. Nortech Systems Incorporated is currently generating about -0.06 per unit of volatility. If you would invest  1,107  in Nortech Systems Incorporated on December 20, 2024 and sell it today you would lose (117.00) from holding Nortech Systems Incorporated or give up 10.57% of portfolio value over 90 days.

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

Modular Medical  vs.  Nortech Systems Incorporated

Modular Medical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Modular Medical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Nortech Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nortech Systems Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Modular Medical and Nortech Systems

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

The idea behind Modular Medical and Nortech Systems Incorporated 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.