Correlation Between Formetal and InnoTherapy

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

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

Diversification Opportunities for Formetal and InnoTherapy

-0.12

Correlation Coefficient

Formetal  InnoTherapy

Good diversification

The 3 months correlation between Formetal and InnoTherapy is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Formetal Co and InnoTherapy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InnoTherapy and Formetal 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 Formetal Co are associated (or correlated) with InnoTherapy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InnoTherapy has no effect on the direction of Formetal i.e., Formetal and InnoTherapy go up and down completely randomly.

Pair Corralation between Formetal and InnoTherapy

Assuming the 90 days trading horizon Formetal Co is expected to generate 2.24 times more return on investment than InnoTherapy. However, Formetal is 2.24 times more volatile than InnoTherapy. It trades about 0.04 of its potential returns per unit of risk. InnoTherapy is currently generating about -0.06 per unit of risk. If you would invest  279,338  in Formetal Co on September 30, 2024 and sell it today you would earn a total of  11,662  from holding Formetal Co or generate 4.17% return on investment over 90 days.

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

Formetal Co  vs.  InnoTherapy

Formetal

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Formetal Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Formetal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

InnoTherapy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days InnoTherapy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, InnoTherapy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Formetal and InnoTherapy

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

The idea behind Formetal Co and InnoTherapy 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.