Correlation Between Salesforce and Establishment Labs

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

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

Diversification Opportunities for Salesforce and Establishment Labs

0.12

Correlation Coefficient

Salesforce  Establishment Labs

Average diversification

The 3 months correlation between Salesforce and Establishment is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and Establishment Labs Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Establishment Labs and Salesforce 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 Salesforce 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 Salesforce i.e., Salesforce and Establishment Labs go up and down completely randomly.

Pair Corralation between Salesforce and Establishment Labs

Considering the 90-day investment horizon Salesforce is expected to generate 0.59 times more return on investment than Establishment Labs. However, Salesforce is 1.69 times less risky than Establishment Labs. It trades about 0.06 of its potential returns per unit of risk. Establishment Labs Holdings is currently generating about 0.01 per unit of risk. If you would invest  16,391  in Salesforce on February 5, 2024 and sell it today you would earn a total of  10,975  from holding Salesforce or generate 66.96% return on investment over 90 days.

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

Salesforce  vs.  Establishment Labs Holdings

Salesforce

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Salesforce has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Salesforce is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Establishment Labs

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Establishment Labs Holdings are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Establishment Labs sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Salesforce and Establishment Labs

The main advantage of trading using opposite Salesforce and Establishment Labs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Salesforce 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 Salesforce 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.