Correlation Between OBSERVE MEDICAL and TRAINLINE PLC

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

By analyzing existing cross correlation between OBSERVE MEDICAL ASA and TRAINLINE PLC LS, you can compare the effects of market volatilities on OBSERVE MEDICAL and TRAINLINE PLC 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 OBSERVE MEDICAL with a short position of TRAINLINE PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of OBSERVE MEDICAL and TRAINLINE PLC.

Diversification Opportunities for OBSERVE MEDICAL and TRAINLINE PLC

-0.03

Correlation Coefficient

OBSERVE MEDICAL  TRAINLINE PLC

Good diversification

The 3 months correlation between OBSERVE and TRAINLINE is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding OBSERVE MEDICAL ASA and TRAINLINE PLC LS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRAINLINE PLC LS and OBSERVE 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 OBSERVE MEDICAL ASA are associated (or correlated) with TRAINLINE PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRAINLINE PLC LS has no effect on the direction of OBSERVE MEDICAL i.e., OBSERVE MEDICAL and TRAINLINE PLC go up and down completely randomly.

Pair Corralation between OBSERVE MEDICAL and TRAINLINE PLC

Assuming the 90 days trading horizon OBSERVE MEDICAL ASA is expected to generate 13.13 times more return on investment than TRAINLINE PLC. However, OBSERVE MEDICAL is 13.13 times more volatile than TRAINLINE PLC LS. It trades about 0.07 of its potential returns per unit of risk. TRAINLINE PLC LS is currently generating about 0.04 per unit of risk. If you would invest  19.00  in OBSERVE MEDICAL ASA on October 4, 2024 and sell it today you would lose (16.24) from holding OBSERVE MEDICAL ASA or give up 85.47% of portfolio value over 90 days.

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

OBSERVE MEDICAL ASA  vs.  TRAINLINE PLC LS

OBSERVE MEDICAL ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OBSERVE MEDICAL ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, OBSERVE MEDICAL is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

TRAINLINE PLC LS

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TRAINLINE PLC LS are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, TRAINLINE PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with OBSERVE MEDICAL and TRAINLINE PLC

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

The idea behind OBSERVE MEDICAL ASA and TRAINLINE PLC LS 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.