Correlation Between TransMedics and Neuropace

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

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

Diversification Opportunities for TransMedics and Neuropace

-0.1

Correlation Coefficient

TransMedics  Neuropace

Good diversification

The 3 months correlation between TransMedics and Neuropace is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding TransMedics Group and Neuropace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neuropace and TransMedics 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 TransMedics Group are associated (or correlated) with Neuropace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neuropace has no effect on the direction of TransMedics i.e., TransMedics and Neuropace go up and down completely randomly.

Pair Corralation between TransMedics and Neuropace

Given the investment horizon of 90 days TransMedics Group is expected to under-perform the Neuropace. In addition to that, TransMedics is 1.25 times more volatile than Neuropace. It trades about -0.02 of its total potential returns per unit of risk. Neuropace is currently generating about 0.08 per unit of volatility. If you would invest  1,129  in Neuropace on December 1, 2024 and sell it today you would earn a total of  166.00  from holding Neuropace or generate 14.7% return on investment over 90 days.

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

TransMedics Group  vs.  Neuropace

TransMedics Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days TransMedics Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, TransMedics is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Neuropace

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Neuropace are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Neuropace exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TransMedics and Neuropace

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

The idea behind TransMedics Group and Neuropace 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.