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 plc, 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

-0.37

Correlation Coefficient

DexCom  Smith Nephew

Very good diversification

The 3 months correlation between DexCom and Smith is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding DexCom Inc 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 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 plc 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 under-perform the Smith Nephew. But the stock apears to be less risky and, when comparing its historical volatility, DexCom Inc is 1.18 times less risky than Smith Nephew. The stock trades about -0.07 of its potential returns per unit of risk. The Smith Nephew plc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,278  in Smith Nephew plc on December 28, 2024 and sell it today you would earn a total of  155.00  from holding Smith Nephew plc or generate 12.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.33%
Values	Daily Returns

DexCom Inc  vs.  Smith Nephew plc

DexCom Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days DexCom Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Smith Nephew plc

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Smith Nephew plc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Smith Nephew reported solid returns over the last few months and may actually be approaching a breakup point.

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 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.