Correlation Between Establishment Labs and CVRx

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

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

Diversification Opportunities for Establishment Labs and CVRx

0.31

Correlation Coefficient

Establishment Labs  CVRx

Weak diversification

The 3 months correlation between Establishment and CVRx is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Establishment Labs Holdings and CVRx Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVRx Inc and Establishment Labs 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 Establishment Labs Holdings are associated (or correlated) with CVRx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVRx Inc has no effect on the direction of Establishment Labs i.e., Establishment Labs and CVRx go up and down completely randomly.

Pair Corralation between Establishment Labs and CVRx

Given the investment horizon of 90 days Establishment Labs is expected to generate 7.13 times less return on investment than CVRx. But when comparing it to its historical volatility, Establishment Labs Holdings is 1.34 times less risky than CVRx. It trades about 0.03 of its potential returns per unit of risk. CVRx Inc is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  768.00  in CVRx Inc on September 15, 2024 and sell it today you would earn a total of  515.00  from holding CVRx Inc or generate 67.06% return on investment over 90 days.

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

Establishment Labs Holdings  vs.  CVRx Inc

Establishment Labs

Risk-Adjusted Performance

2 of 100

Weak

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

CVRx Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CVRx Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, CVRx showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Establishment Labs and CVRx

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

The idea behind Establishment Labs Holdings and CVRx Inc 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.