Correlation Between LumiraDx and Psychemedics

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

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

Diversification Opportunities for LumiraDx and Psychemedics

-0.4

Correlation Coefficient

LumiraDx  Psychemedics

Very good diversification

The 3 months correlation between LumiraDx and Psychemedics is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding LumiraDx and Psychemedics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Psychemedics and LumiraDx 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 LumiraDx are associated (or correlated) with Psychemedics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Psychemedics has no effect on the direction of LumiraDx i.e., LumiraDx and Psychemedics go up and down completely randomly.

Pair Corralation between LumiraDx and Psychemedics

Given the investment horizon of 90 days LumiraDx is expected to generate 1.96 times more return on investment than Psychemedics. However, LumiraDx is 1.96 times more volatile than Psychemedics. It trades about 0.03 of its potential returns per unit of risk. Psychemedics is currently generating about -0.04 per unit of risk. If you would invest  42.00  in LumiraDx on September 1, 2024 and sell it today you would earn a total of  0.00  from holding LumiraDx or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	8.33%
Values	Daily Returns

LumiraDx  vs.  Psychemedics

LumiraDx

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LumiraDx has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, LumiraDx is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Psychemedics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Psychemedics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Psychemedics is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with LumiraDx and Psychemedics

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

The idea behind LumiraDx and Psychemedics 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.