Correlation Between Neuronetics and Psychemedics

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

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

Diversification Opportunities for Neuronetics and Psychemedics

0.22

Correlation Coefficient

Neuronetics  Psychemedics

Modest diversification

The 3 months correlation between Neuronetics and Psychemedics is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Neuronetics and Psychemedics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Psychemedics and Neuronetics 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 Neuronetics are associated (or correlated) with Psychemedics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Psychemedics has no effect on the direction of Neuronetics i.e., Neuronetics and Psychemedics go up and down completely randomly.

Pair Corralation between Neuronetics and Psychemedics

Given the investment horizon of 90 days Neuronetics is expected to generate 12.71 times more return on investment than Psychemedics. However, Neuronetics is 12.71 times more volatile than Psychemedics. It trades about 0.07 of its potential returns per unit of risk. Psychemedics is currently generating about 0.03 per unit of risk. If you would invest  87.00  in Neuronetics on September 3, 2024 and sell it today you would earn a total of  13.00  from holding Neuronetics or generate 14.94% return on investment over 90 days.

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

Neuronetics  vs.  Psychemedics

Neuronetics

Risk-Adjusted Performance

5 of 100

Modest

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

Psychemedics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Psychemedics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Psychemedics is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Neuronetics and Psychemedics

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

The idea behind Neuronetics and Psychemedics 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.