Correlation Between Sonic Healthcare and Xero

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

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

Diversification Opportunities for Sonic Healthcare and Xero

0.59

Correlation Coefficient

Sonic Healthcare  Xero

Very weak diversification

The 3 months correlation between Sonic and Xero is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Sonic Healthcare and Xero in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xero 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 Xero. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xero has no effect on the direction of Sonic Healthcare i.e., Sonic Healthcare and Xero go up and down completely randomly.

Pair Corralation between Sonic Healthcare and Xero

Assuming the 90 days trading horizon Sonic Healthcare is expected to under-perform the Xero. But the stock apears to be less risky and, when comparing its historical volatility, Sonic Healthcare is 1.42 times less risky than Xero. The stock trades about 0.0 of its potential returns per unit of risk. The Xero is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  7,063  in Xero on October 3, 2024 and sell it today you would earn a total of  9,793  from holding Xero or generate 138.65% return on investment over 90 days.

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

Sonic Healthcare  vs.  Xero

Sonic Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sonic Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Sonic Healthcare is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Xero

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xero are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Xero unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sonic Healthcare and Xero

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

The idea behind Sonic Healthcare and Xero 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.