Optimize Code for Speed

An equipment-test QA harness ingests sensor readings from stress-test rigs and flags anomalies against a calibration reference. The method below has started taking minutes to process a single rig's readings as test volume has grown. Optimize this piece of code to reduce execution time.

public List<string> FindAnomalies(List<SensorReading> readings, string calibrationPath)
{
    ArrayList seenIds = new ArrayList();
    var report = "";

    foreach (var reading in readings)
    {
        var calibrationLines = File.ReadAllLines(calibrationPath);
        double baseline = 0;
        foreach (var line in calibrationLines)
        {
            if (line.StartsWith(reading.SensorId))
            {
                baseline = double.Parse(line.Split(',')[1]);
                break;
            }
        }

        if (seenIds.Contains(reading.ReadingId))
        {
            continue;
        }
        seenIds.Add(reading.ReadingId);

        var outOfRange = readings.Where(r => r.SensorId == reading.SensorId && Math.Abs(r.Value - baseline) > 5.0).ToList();

        if (outOfRange.Count > 0)
        {
            report += reading.SensorId + ": " + reading.Value + " vs baseline " + baseline + "
";
        }
    }

    return report.Split('
').ToList();
}

readings regularly has tens of thousands of entries per stress-test rig. Explain what makes this slow and how you would fix it.