Correlation Between Medical Facilities and SPoT Coffee

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

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

Diversification Opportunities for Medical Facilities and SPoT Coffee

0.0

Correlation Coefficient

Medical Facilities  SPoT Coffee

Pay attention - limited upside

The 3 months correlation between Medical and SPoT is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Medical Facilities and SPoT Coffee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPoT Coffee and Medical Facilities 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 Medical Facilities are associated (or correlated) with SPoT Coffee. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPoT Coffee has no effect on the direction of Medical Facilities i.e., Medical Facilities and SPoT Coffee go up and down completely randomly.

Pair Corralation between Medical Facilities and SPoT Coffee

Assuming the 90 days horizon Medical Facilities is expected to generate 2.62 times less return on investment than SPoT Coffee. But when comparing it to its historical volatility, Medical Facilities is 5.82 times less risky than SPoT Coffee. It trades about 0.05 of its potential returns per unit of risk. SPoT Coffee is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  5.50  in SPoT Coffee on July 8, 2024 and sell it today you would lose (4.00) from holding SPoT Coffee or give up 72.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Medical Facilities  vs.  SPoT Coffee

Medical Facilities

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Medical Facilities are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Medical Facilities may actually be approaching a critical reversion point that can send shares even higher in November 2024.

SPoT Coffee

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPoT Coffee has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, SPoT Coffee is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Medical Facilities and SPoT Coffee

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

The idea behind Medical Facilities and SPoT Coffee 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.