Correlation Between Medtronic Plc and Boston Scientific

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

By analyzing existing cross correlation between Medtronic plc and Boston Scientific, you can compare the effects of market volatilities on Medtronic Plc and Boston Scientific 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 Medtronic Plc with a short position of Boston Scientific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Medtronic Plc and Boston Scientific.

Diversification Opportunities for Medtronic Plc and Boston Scientific

0.04

Correlation Coefficient

Medtronic Plc  Boston Scientific

Significant diversification

The 3 months correlation between Medtronic and Boston is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Medtronic plc and Boston Scientific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boston Scientific and Medtronic Plc 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 Medtronic plc are associated (or correlated) with Boston Scientific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boston Scientific has no effect on the direction of Medtronic Plc i.e., Medtronic Plc and Boston Scientific go up and down completely randomly.

Pair Corralation between Medtronic Plc and Boston Scientific

Assuming the 90 days trading horizon Medtronic Plc is expected to generate 2.8 times less return on investment than Boston Scientific. But when comparing it to its historical volatility, Medtronic plc is 1.19 times less risky than Boston Scientific. It trades about 0.06 of its potential returns per unit of risk. Boston Scientific is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  55,296  in Boston Scientific on October 16, 2024 and sell it today you would earn a total of  2,524  from holding Boston Scientific or generate 4.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

Medtronic plc  vs.  Boston Scientific

Medtronic plc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Medtronic plc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Medtronic Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Boston Scientific

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Boston Scientific are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Boston Scientific sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Medtronic Plc and Boston Scientific

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

The idea behind Medtronic plc and Boston Scientific 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.