Correlation Between CochLear and Smith Nephew

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

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

Diversification Opportunities for CochLear and Smith Nephew

0.14

Correlation Coefficient

CochLear  Smith Nephew

Average diversification

The 3 months correlation between CochLear and Smith is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding CochLear Ltd ADR and Smith Nephew SNATS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Nephew SNATS and CochLear 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 CochLear Ltd ADR 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 SNATS has no effect on the direction of CochLear i.e., CochLear and Smith Nephew go up and down completely randomly.

Pair Corralation between CochLear and Smith Nephew

Assuming the 90 days horizon CochLear Ltd ADR is expected to generate 0.69 times more return on investment than Smith Nephew. However, CochLear Ltd ADR is 1.45 times less risky than Smith Nephew. It trades about 0.02 of its potential returns per unit of risk. Smith Nephew SNATS is currently generating about -0.12 per unit of risk. If you would invest  9,869  in CochLear Ltd ADR on August 31, 2024 and sell it today you would earn a total of  135.00  from holding CochLear Ltd ADR or generate 1.37% return on investment over 90 days.

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

CochLear Ltd ADR  vs.  Smith Nephew SNATS

CochLear ADR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CochLear Ltd ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, CochLear is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Smith Nephew SNATS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Nephew SNATS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with CochLear and Smith Nephew

The main advantage of trading using opposite CochLear and Smith Nephew positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CochLear 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 CochLear Ltd ADR and Smith Nephew SNATS 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.

Check out your portfolio center.

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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.