Correlation Between ICU Medical and Baxter International

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

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

Diversification Opportunities for ICU Medical and Baxter International

-0.54

Correlation Coefficient

ICU Medical  Baxter International

Excellent diversification

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

Pair Corralation between ICU Medical and Baxter International

Given the investment horizon of 90 days ICU Medical is expected to under-perform the Baxter International. In addition to that, ICU Medical is 1.23 times more volatile than Baxter International. It trades about -0.03 of its total potential returns per unit of risk. Baxter International is currently generating about 0.12 per unit of volatility. 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

ICU Medical  vs.  Baxter International

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.

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.

Pair Trading with ICU Medical and Baxter International

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

The idea behind ICU Medical and Baxter International 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.