Correlation Between Penumbra and Medtronic PLC

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

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

Diversification Opportunities for Penumbra and Medtronic PLC

0.74

Correlation Coefficient

Penumbra  Medtronic PLC

Poor diversification

The 3 months correlation between Penumbra and Medtronic is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Penumbra and Medtronic PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medtronic PLC and Penumbra 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 Penumbra 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 Penumbra i.e., Penumbra and Medtronic PLC go up and down completely randomly.

Pair Corralation between Penumbra and Medtronic PLC

Considering the 90-day investment horizon Penumbra is expected to generate 1.64 times more return on investment than Medtronic PLC. However, Penumbra is 1.64 times more volatile than Medtronic PLC. It trades about 0.1 of its potential returns per unit of risk. Medtronic PLC is currently generating about 0.1 per unit of risk. If you would invest  23,985  in Penumbra on December 27, 2024 and sell it today you would earn a total of  3,530  from holding Penumbra or generate 14.72% return on investment over 90 days.

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

Penumbra  vs.  Medtronic PLC

Penumbra

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Penumbra are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, Penumbra displayed solid returns over the last few months and may actually be approaching a breakup point.

Medtronic PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Medtronic PLC are ranked lower than 7 (%) 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 April 2025.

Pair Trading with Penumbra and Medtronic PLC

The main advantage of trading using opposite Penumbra and Medtronic PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Penumbra 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 Penumbra 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.