Correlation Between Medtronic PLC and OBSERVE MEDICAL

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

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

Diversification Opportunities for Medtronic PLC and OBSERVE MEDICAL

-0.59

Correlation Coefficient

Medtronic PLC  OBSERVE MEDICAL

Excellent diversification

The 3 months correlation between Medtronic and OBSERVE is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Medtronic PLC and OBSERVE MEDICAL ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OBSERVE MEDICAL ASA and Medtronic PLC 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 Medtronic PLC are associated (or correlated) with OBSERVE MEDICAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OBSERVE MEDICAL ASA has no effect on the direction of Medtronic PLC i.e., Medtronic PLC and OBSERVE MEDICAL go up and down completely randomly.

Pair Corralation between Medtronic PLC and OBSERVE MEDICAL

Assuming the 90 days horizon Medtronic PLC is expected to under-perform the OBSERVE MEDICAL. But the stock apears to be less risky and, when comparing its historical volatility, Medtronic PLC is 6.62 times less risky than OBSERVE MEDICAL. The stock trades about -0.22 of its potential returns per unit of risk. The OBSERVE MEDICAL ASA is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2.70  in OBSERVE MEDICAL ASA on September 26, 2024 and sell it today you would earn a total of  0.26  from holding OBSERVE MEDICAL ASA or generate 9.63% return on investment over 90 days.

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

Medtronic PLC  vs.  OBSERVE MEDICAL ASA

Medtronic PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medtronic PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Medtronic PLC is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

OBSERVE MEDICAL ASA

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Medtronic PLC and OBSERVE MEDICAL

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

The idea behind Medtronic PLC and OBSERVE MEDICAL ASA 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.