Correlation Between Koninklijke Philips and Zimmer Biomet

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

By analyzing existing cross correlation between Koninklijke Philips NV and Zimmer Biomet Holdings, you can compare the effects of market volatilities on Koninklijke Philips and Zimmer Biomet 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 Koninklijke Philips with a short position of Zimmer Biomet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Koninklijke Philips and Zimmer Biomet.

Diversification Opportunities for Koninklijke Philips and Zimmer Biomet

-0.13

Correlation Coefficient

Koninklijke Philips  Zimmer Biomet

Good diversification

The 3 months correlation between Koninklijke and Zimmer is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Koninklijke Philips NV and Zimmer Biomet Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zimmer Biomet Holdings and Koninklijke Philips 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 Koninklijke Philips NV are associated (or correlated) with Zimmer Biomet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zimmer Biomet Holdings has no effect on the direction of Koninklijke Philips i.e., Koninklijke Philips and Zimmer Biomet go up and down completely randomly.

Pair Corralation between Koninklijke Philips and Zimmer Biomet

Considering the 90-day investment horizon Koninklijke Philips is expected to generate 2.43 times less return on investment than Zimmer Biomet. In addition to that, Koninklijke Philips is 1.43 times more volatile than Zimmer Biomet Holdings. It trades about 0.02 of its total potential returns per unit of risk. Zimmer Biomet Holdings is currently generating about 0.07 per unit of volatility. If you would invest  10,540  in Zimmer Biomet Holdings on December 29, 2024 and sell it today you would earn a total of  675.00  from holding Zimmer Biomet Holdings or generate 6.4% return on investment over 90 days.

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

Koninklijke Philips NV  vs.  Zimmer Biomet Holdings

Koninklijke Philips

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Koninklijke Philips NV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Koninklijke Philips is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Zimmer Biomet Holdings

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zimmer Biomet Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental drivers, Zimmer Biomet may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Koninklijke Philips and Zimmer Biomet

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

The idea behind Koninklijke Philips NV and Zimmer Biomet Holdings 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.