Correlation Between IDEXX Laboratories and EDAP TMS

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

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

Diversification Opportunities for IDEXX Laboratories and EDAP TMS

-0.5

Correlation Coefficient

IDEXX Laboratories  EDAP TMS

Very good diversification

The 3 months correlation between IDEXX and EDAP is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding IDEXX Laboratories and EDAP TMS SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EDAP TMS SA and IDEXX Laboratories 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 IDEXX Laboratories are associated (or correlated) with EDAP TMS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EDAP TMS SA has no effect on the direction of IDEXX Laboratories i.e., IDEXX Laboratories and EDAP TMS go up and down completely randomly.

Pair Corralation between IDEXX Laboratories and EDAP TMS

Given the investment horizon of 90 days IDEXX Laboratories is expected to under-perform the EDAP TMS. But the stock apears to be less risky and, when comparing its historical volatility, IDEXX Laboratories is 2.17 times less risky than EDAP TMS. The stock trades about -0.1 of its potential returns per unit of risk. The EDAP TMS SA is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  617.00  in EDAP TMS SA on February 11, 2024 and sell it today you would earn a total of  93.00  from holding EDAP TMS SA or generate 15.07% return on investment over 90 days.

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

IDEXX Laboratories  vs.  EDAP TMS SA

IDEXX Laboratories

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IDEXX Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

EDAP TMS SA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EDAP TMS SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, EDAP TMS reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IDEXX Laboratories and EDAP TMS

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

The idea behind IDEXX Laboratories and EDAP TMS SA 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.