Correlation Between Align Technology and TransMedics

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

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

Diversification Opportunities for Align Technology and TransMedics

0.61

Correlation Coefficient

Align Technology  TransMedics

Poor diversification

The 3 months correlation between Align and TransMedics is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Align Technology and TransMedics Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TransMedics Group and Align Technology 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 Align Technology are associated (or correlated) with TransMedics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TransMedics Group has no effect on the direction of Align Technology i.e., Align Technology and TransMedics go up and down completely randomly.

Pair Corralation between Align Technology and TransMedics

Given the investment horizon of 90 days Align Technology is expected to generate 0.46 times more return on investment than TransMedics. However, Align Technology is 2.17 times less risky than TransMedics. It trades about 0.02 of its potential returns per unit of risk. TransMedics Group is currently generating about -0.15 per unit of risk. If you would invest  22,650  in Align Technology on August 31, 2024 and sell it today you would earn a total of  316.00  from holding Align Technology or generate 1.4% return on investment over 90 days.

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

Align Technology  vs.  TransMedics Group

Align Technology

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Align Technology are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Align Technology is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

TransMedics Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TransMedics Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Align Technology and TransMedics

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

The idea behind Align Technology and TransMedics Group 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.