Correlation Between Psychemedics and Sotera Health

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

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

Diversification Opportunities for Psychemedics and Sotera Health

-0.33

Correlation Coefficient

Psychemedics  Sotera Health

Very good diversification

The 3 months correlation between Psychemedics and Sotera is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Psychemedics and Sotera Health Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sotera Health and Psychemedics 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 Psychemedics are associated (or correlated) with Sotera Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sotera Health has no effect on the direction of Psychemedics i.e., Psychemedics and Sotera Health go up and down completely randomly.

Pair Corralation between Psychemedics and Sotera Health

Considering the 90-day investment horizon Psychemedics is expected to generate 0.26 times more return on investment than Sotera Health. However, Psychemedics is 3.81 times less risky than Sotera Health. It trades about 0.05 of its potential returns per unit of risk. Sotera Health Co is currently generating about -0.09 per unit of risk. If you would invest  230.00  in Psychemedics on August 31, 2024 and sell it today you would earn a total of  4.00  from holding Psychemedics or generate 1.74% return on investment over 90 days.

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

Psychemedics  vs.  Sotera Health Co

Psychemedics

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Psychemedics are ranked lower than 3 (%) 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.

Sotera Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sotera Health Co 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 technical indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Psychemedics and Sotera Health

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

The idea behind Psychemedics and Sotera Health Co 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.