Correlation Between Psychemedics and Star Equity

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

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

Diversification Opportunities for Psychemedics and Star Equity

-0.46

Correlation Coefficient

Psychemedics  Star Equity

Very good diversification

The 3 months correlation between Psychemedics and Star is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Psychemedics and Star Equity Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Star Equity Holdings and Psychemedics 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 Psychemedics are associated (or correlated) with Star Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Star Equity Holdings has no effect on the direction of Psychemedics i.e., Psychemedics and Star Equity go up and down completely randomly.

Pair Corralation between Psychemedics and Star Equity

Considering the 90-day investment horizon Psychemedics is expected to generate 1.62 times more return on investment than Star Equity. However, Psychemedics is 1.62 times more volatile than Star Equity Holdings. It trades about 0.06 of its potential returns per unit of risk. Star Equity Holdings is currently generating about -0.19 per unit of risk. If you would invest  232.00  in Psychemedics on September 15, 2024 and sell it today you would earn a total of  35.00  from holding Psychemedics or generate 15.09% return on investment over 90 days.

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

Psychemedics  vs.  Star Equity Holdings

Psychemedics

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Psychemedics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating primary indicators, Psychemedics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Star Equity Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Star Equity Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Psychemedics and Star Equity

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

The idea behind Psychemedics and Star Equity Holdings 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.