Correlation Between Sonic Healthcare and Medical Developments

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

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

Diversification Opportunities for Sonic Healthcare and Medical Developments

-0.49

Correlation Coefficient

Sonic Healthcare  Medical Developments

Very good diversification

The 3 months correlation between Sonic and Medical is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Sonic Healthcare and Medical Developments Internati in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medical Developments and Sonic Healthcare 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 Sonic Healthcare are associated (or correlated) with Medical Developments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medical Developments has no effect on the direction of Sonic Healthcare i.e., Sonic Healthcare and Medical Developments go up and down completely randomly.

Pair Corralation between Sonic Healthcare and Medical Developments

Assuming the 90 days trading horizon Sonic Healthcare is expected to generate 0.33 times more return on investment than Medical Developments. However, Sonic Healthcare is 3.05 times less risky than Medical Developments. It trades about 0.0 of its potential returns per unit of risk. Medical Developments International is currently generating about -0.04 per unit of risk. If you would invest  2,971  in Sonic Healthcare on October 25, 2024 and sell it today you would lose (184.00) from holding Sonic Healthcare or give up 6.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Sonic Healthcare  vs.  Medical Developments Internati

Sonic Healthcare

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sonic Healthcare are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, Sonic Healthcare is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Medical Developments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medical Developments International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Sonic Healthcare and Medical Developments

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

The idea behind Sonic Healthcare and Medical Developments 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.