Correlation Between Outset Medical and Modular Medical

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

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

Diversification Opportunities for Outset Medical and Modular Medical

-0.86

Correlation Coefficient

Outset Medical  Modular Medical

Pay attention - limited upside

The 3 months correlation between Outset and Modular is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Outset Medical and Modular Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modular Medical and Outset Medical 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 Outset Medical are associated (or correlated) with Modular Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modular Medical has no effect on the direction of Outset Medical i.e., Outset Medical and Modular Medical go up and down completely randomly.

Pair Corralation between Outset Medical and Modular Medical

Allowing for the 90-day total investment horizon Outset Medical is expected to generate 2.57 times more return on investment than Modular Medical. However, Outset Medical is 2.57 times more volatile than Modular Medical. It trades about 0.22 of its potential returns per unit of risk. Modular Medical is currently generating about -0.26 per unit of risk. If you would invest  52.00  in Outset Medical on September 23, 2024 and sell it today you would earn a total of  69.00  from holding Outset Medical or generate 132.69% return on investment over 90 days.

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

Outset Medical  vs.  Modular Medical

Outset Medical

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Outset Medical are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Outset Medical displayed solid returns over the last few months and may actually be approaching a breakup point.

Modular Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Modular Medical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Outset Medical and Modular Medical

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

The idea behind Outset Medical and Modular Medical 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.