Correlation Between Outset MedicalInc and Establishment Labs

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

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

Diversification Opportunities for Outset MedicalInc and Establishment Labs

-0.52

Correlation Coefficient

Outset MedicalInc  Establishment Labs

Excellent diversification

The 3 months correlation between Outset and Establishment is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Outset MedicalInc and Establishment Labs Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Establishment Labs and Outset MedicalInc 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 Outset MedicalInc 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 Outset MedicalInc i.e., Outset MedicalInc and Establishment Labs go up and down completely randomly.

Pair Corralation between Outset MedicalInc and Establishment Labs

Allowing for the 90-day total investment horizon Outset MedicalInc is expected to generate 3.22 times less return on investment than Establishment Labs. In addition to that, Outset MedicalInc is 1.72 times more volatile than Establishment Labs Holdings. It trades about 0.03 of its total potential returns per unit of risk. Establishment Labs Holdings is currently generating about 0.17 per unit of volatility. If you would invest  3,725  in Establishment Labs Holdings on February 13, 2024 and sell it today you would earn a total of  1,894  from holding Establishment Labs Holdings or generate 50.85% return on investment over 90 days.

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

Outset MedicalInc  vs.  Establishment Labs Holdings

Outset MedicalInc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Outset MedicalInc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile primary indicators, Outset MedicalInc displayed solid returns over the last few months and may actually be approaching a breakup point.

Establishment Labs

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Establishment Labs Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Establishment Labs sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Outset MedicalInc and Establishment Labs

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