Correlation Between Baxter International and ICU Medical

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

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

Diversification Opportunities for Baxter International and ICU Medical

-0.54

Correlation Coefficient

Baxter International  ICU Medical

Excellent diversification

The 3 months correlation between Baxter and ICU is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Baxter International and ICU Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ICU Medical and Baxter International 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 Baxter International are associated (or correlated) with ICU Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ICU Medical has no effect on the direction of Baxter International i.e., Baxter International and ICU Medical go up and down completely randomly.

Pair Corralation between Baxter International and ICU Medical

Considering the 90-day investment horizon Baxter International is expected to generate 0.82 times more return on investment than ICU Medical. However, Baxter International is 1.23 times less risky than ICU Medical. It trades about 0.12 of its potential returns per unit of risk. ICU Medical is currently generating about -0.03 per unit of risk. If you would invest  2,916  in Baxter International on December 26, 2024 and sell it today you would earn a total of  420.00  from holding Baxter International or generate 14.4% return on investment over 90 days.

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

Baxter International  vs.  ICU Medical

Baxter International

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baxter International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Baxter International showed solid returns over the last few months and may actually be approaching a breakup point.

ICU Medical

Risk-Adjusted Performance

Very Weak

Over the last 90 days ICU Medical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, ICU Medical is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Baxter International and ICU Medical

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

The idea behind Baxter International and ICU 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.