Correlation Between Medical Equipment and Health Care

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

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

Diversification Opportunities for Medical Equipment and Health Care

0.83

Correlation Coefficient

Medical Equipment  Health Care

Very poor diversification

The 3 months correlation between Medical and Health is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Medical Equipment And and Health Care Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Services and Medical Equipment 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 Medical Equipment And are associated (or correlated) with Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Services has no effect on the direction of Medical Equipment i.e., Medical Equipment and Health Care go up and down completely randomly.

Pair Corralation between Medical Equipment and Health Care

Assuming the 90 days horizon Medical Equipment And is expected to generate 0.77 times more return on investment than Health Care. However, Medical Equipment And is 1.3 times less risky than Health Care. It trades about -0.21 of its potential returns per unit of risk. Health Care Services is currently generating about -0.35 per unit of risk. If you would invest  6,868  in Medical Equipment And on October 9, 2024 and sell it today you would lose (529.00) from holding Medical Equipment And or give up 7.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.0%
Values	Daily Returns

Medical Equipment And  vs.  Health Care Services

Medical Equipment And

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medical Equipment And has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Medical Equipment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Health Care Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Health Care Services has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Medical Equipment and Health Care

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

The idea behind Medical Equipment And and Health Care Services 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.