Correlation Between Penumbra and Electromed

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

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

Diversification Opportunities for Penumbra and Electromed

0.16

Correlation Coefficient

Penumbra  Electromed

Average diversification

The 3 months correlation between Penumbra and Electromed is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Penumbra and Electromed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electromed and Penumbra 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 Penumbra are associated (or correlated) with Electromed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electromed has no effect on the direction of Penumbra i.e., Penumbra and Electromed go up and down completely randomly.

Pair Corralation between Penumbra and Electromed

Considering the 90-day investment horizon Penumbra is expected to generate 0.71 times more return on investment than Electromed. However, Penumbra is 1.42 times less risky than Electromed. It trades about 0.11 of its potential returns per unit of risk. Electromed is currently generating about -0.03 per unit of risk. If you would invest  24,484  in Penumbra on December 2, 2024 and sell it today you would earn a total of  4,060  from holding Penumbra or generate 16.58% return on investment over 90 days.

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

Penumbra  vs.  Electromed

Penumbra

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Penumbra are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, Penumbra displayed solid returns over the last few months and may actually be approaching a breakup point.

Electromed

Risk-Adjusted Performance

Very Weak

Over the last 90 days Electromed has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Penumbra and Electromed

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

The idea behind Penumbra and Electromed 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.