Correlation Between Orthofix Medical and Medtronic PLC

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

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

Diversification Opportunities for Orthofix Medical and Medtronic PLC

0.44

Correlation Coefficient

Orthofix Medical  Medtronic PLC

Very weak diversification

The 3 months correlation between Orthofix and Medtronic is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Orthofix Medical and Medtronic PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medtronic PLC and Orthofix 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 Orthofix Medical are associated (or correlated) with Medtronic PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medtronic PLC has no effect on the direction of Orthofix Medical i.e., Orthofix Medical and Medtronic PLC go up and down completely randomly.

Pair Corralation between Orthofix Medical and Medtronic PLC

Given the investment horizon of 90 days Orthofix Medical is expected to under-perform the Medtronic PLC. But the stock apears to be less risky and, when comparing its historical volatility, Orthofix Medical is 1.07 times less risky than Medtronic PLC. The stock trades about -0.14 of its potential returns per unit of risk. The Medtronic PLC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  8,580  in Medtronic PLC on November 29, 2024 and sell it today you would earn a total of  478.00  from holding Medtronic PLC or generate 5.57% return on investment over 90 days.

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

Orthofix Medical  vs.  Medtronic PLC

Orthofix Medical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Orthofix Medical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Medtronic PLC

Risk-Adjusted Performance

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. In spite of comparatively weak fundamental indicators, Medtronic PLC may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Orthofix Medical and Medtronic PLC

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

The idea behind Orthofix Medical and Medtronic 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.