Correlation Between DexCom and Smith Nephew

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

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

Diversification Opportunities for DexCom and Smith Nephew

0.32

Correlation Coefficient

DexCom  Smith Nephew

Weak diversification

The 3 months correlation between DexCom and Smith is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding DexCom Inc 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 DexCom 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 DexCom Inc 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 DexCom i.e., DexCom and Smith Nephew go up and down completely randomly.

Pair Corralation between DexCom and Smith Nephew

Given the investment horizon of 90 days DexCom Inc is expected to generate 1.78 times more return on investment than Smith Nephew. However, DexCom is 1.78 times more volatile than Smith Nephew SNATS. It trades about 0.14 of its potential returns per unit of risk. Smith Nephew SNATS is currently generating about 0.03 per unit of risk. If you would invest  7,524  in DexCom Inc on November 20, 2024 and sell it today you would earn a total of  1,383  from holding DexCom Inc or generate 18.38% return on investment over 90 days.

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

DexCom Inc  vs.  Smith Nephew SNATS

DexCom Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DexCom Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, DexCom displayed solid returns over the last few months and may actually be approaching a breakup point.

Smith Nephew SNATS

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Smith Nephew SNATS are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Smith Nephew is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with DexCom and Smith Nephew

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

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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 Stocks Directory module to find actively traded stocks across global markets.