Correlation Between Electromed and UFP Technologies

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

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

Diversification Opportunities for Electromed and UFP Technologies

-0.12

Correlation Coefficient

Electromed  UFP Technologies

Good diversification

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

Pair Corralation between Electromed and UFP Technologies

Given the investment horizon of 90 days Electromed is expected to generate 0.78 times more return on investment than UFP Technologies. However, Electromed is 1.28 times less risky than UFP Technologies. It trades about 0.27 of its potential returns per unit of risk. UFP Technologies is currently generating about -0.02 per unit of risk. If you would invest  1,823  in Electromed on September 13, 2024 and sell it today you would earn a total of  1,058  from holding Electromed or generate 58.04% return on investment over 90 days.

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

Electromed  vs.  UFP Technologies

Electromed

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Electromed are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting primary indicators, Electromed exhibited solid returns over the last few months and may actually be approaching a breakup point.

UFP Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UFP Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, UFP Technologies is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Electromed and UFP Technologies

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

The idea behind Electromed and UFP Technologies 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.