Correlation Between ResMed and Establishment Labs

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

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

Diversification Opportunities for ResMed and Establishment Labs

-0.42

Correlation Coefficient

ResMed  Establishment Labs

Very good diversification

The 3 months correlation between ResMed and Establishment is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding ResMed Inc and Establishment Labs Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Establishment Labs and ResMed 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 ResMed Inc are associated (or correlated) with Establishment Labs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Establishment Labs has no effect on the direction of ResMed i.e., ResMed and Establishment Labs go up and down completely randomly.

Pair Corralation between ResMed and Establishment Labs

Considering the 90-day investment horizon ResMed Inc is expected to under-perform the Establishment Labs. But the stock apears to be less risky and, when comparing its historical volatility, ResMed Inc is 3.09 times less risky than Establishment Labs. The stock trades about -0.03 of its potential returns per unit of risk. The Establishment Labs Holdings is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  4,537  in Establishment Labs Holdings on December 30, 2024 and sell it today you would lose (494.00) from holding Establishment Labs Holdings or give up 10.89% of portfolio value over 90 days.

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

ResMed Inc  vs.  Establishment Labs Holdings

ResMed Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days ResMed Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, ResMed is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Establishment Labs

Risk-Adjusted Performance

Very Weak

Over the last 90 days Establishment Labs Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Establishment Labs is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ResMed and Establishment Labs

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

The idea behind ResMed Inc and Establishment Labs 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.

Check out your portfolio center.

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.