Correlation Between OBSERVE MEDICAL and INDUSTRIAL MINERALS

Can any of the company-specific risk be diversified away by investing in both OBSERVE MEDICAL and INDUSTRIAL MINERALS 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 INDUSTRIAL MINERALS 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 INDUSTRIAL MINERALS LTD, you can compare the effects of market volatilities on OBSERVE MEDICAL and INDUSTRIAL MINERALS 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 INDUSTRIAL MINERALS. Check out your portfolio center. Please also check ongoing floating volatility patterns of OBSERVE MEDICAL and INDUSTRIAL MINERALS.

Diversification Opportunities for OBSERVE MEDICAL and INDUSTRIAL MINERALS

0.04

Correlation Coefficient

OBSERVE MEDICAL  INDUSTRIAL MINERALS

Significant diversification

The 3 months correlation between OBSERVE and INDUSTRIAL is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding OBSERVE MEDICAL ASA and INDUSTRIAL MINERALS LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INDUSTRIAL MINERALS LTD 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 INDUSTRIAL MINERALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INDUSTRIAL MINERALS LTD has no effect on the direction of OBSERVE MEDICAL i.e., OBSERVE MEDICAL and INDUSTRIAL MINERALS go up and down completely randomly.

Pair Corralation between OBSERVE MEDICAL and INDUSTRIAL MINERALS

Assuming the 90 days trading horizon OBSERVE MEDICAL is expected to generate 6.9 times less return on investment than INDUSTRIAL MINERALS. In addition to that, OBSERVE MEDICAL is 1.55 times more volatile than INDUSTRIAL MINERALS LTD. It trades about 0.01 of its total potential returns per unit of risk. INDUSTRIAL MINERALS LTD is currently generating about 0.07 per unit of volatility. If you would invest  7.95  in INDUSTRIAL MINERALS LTD on December 23, 2024 and sell it today you would earn a total of  1.40  from holding INDUSTRIAL MINERALS LTD or generate 17.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	91.8%
Values	Daily Returns

OBSERVE MEDICAL ASA  vs.  INDUSTRIAL MINERALS LTD

OBSERVE MEDICAL ASA

Risk-Adjusted Performance

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.

INDUSTRIAL MINERALS LTD

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in INDUSTRIAL MINERALS LTD are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, INDUSTRIAL MINERALS reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with OBSERVE MEDICAL and INDUSTRIAL MINERALS

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

The idea behind OBSERVE MEDICAL ASA and INDUSTRIAL MINERALS LTD 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.