Correlation Between Anika Therapeutics and Smith Nephew

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

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

Diversification Opportunities for Anika Therapeutics and Smith Nephew

0.79

Correlation Coefficient

Anika Therapeutics  Smith Nephew

Poor diversification

The 3 months correlation between Anika and Smith is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Anika Therapeutics and Smith Nephew plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Nephew plc and Anika Therapeutics 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 Anika Therapeutics are associated (or correlated) with Smith Nephew. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Nephew plc has no effect on the direction of Anika Therapeutics i.e., Anika Therapeutics and Smith Nephew go up and down completely randomly.

Pair Corralation between Anika Therapeutics and Smith Nephew

Given the investment horizon of 90 days Anika Therapeutics is expected to under-perform the Smith Nephew. In addition to that, Anika Therapeutics is 1.35 times more volatile than Smith Nephew plc. It trades about -0.11 of its total potential returns per unit of risk. Smith Nephew plc is currently generating about -0.08 per unit of volatility. If you would invest  1,550  in Smith Nephew plc on September 4, 2024 and sell it today you would lose (258.00) from holding Smith Nephew plc or give up 16.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.88%
Values	Daily Returns

Anika Therapeutics  vs.  Smith Nephew plc

Anika Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Anika Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's forward indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Smith Nephew plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Nephew plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Anika Therapeutics and Smith Nephew

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

The idea behind Anika Therapeutics and Smith Nephew plc 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.