Correlation Between Smith Nephew and Medtronic PLC

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

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

Diversification Opportunities for Smith Nephew and Medtronic PLC

0.47

Correlation Coefficient

Smith Nephew  Medtronic PLC

Very weak diversification

The 3 months correlation between Smith and Medtronic is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Smith Nephew SNATS and Medtronic PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medtronic PLC and Smith Nephew 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 Smith Nephew SNATS 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 Smith Nephew i.e., Smith Nephew and Medtronic PLC go up and down completely randomly.

Pair Corralation between Smith Nephew and Medtronic PLC

Considering the 90-day investment horizon Smith Nephew SNATS is expected to under-perform the Medtronic PLC. In addition to that, Smith Nephew is 1.95 times more volatile than Medtronic PLC. It trades about -0.11 of its total potential returns per unit of risk. Medtronic PLC is currently generating about -0.02 per unit of volatility. If you would invest  8,826  in Medtronic PLC on September 2, 2024 and sell it today you would lose (172.00) from holding Medtronic PLC or give up 1.95% of portfolio value over 90 days.

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

Smith Nephew SNATS  vs.  Medtronic PLC

Smith Nephew SNATS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Nephew SNATS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Medtronic PLC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Smith Nephew and Medtronic PLC

The main advantage of trading using opposite Smith Nephew and Medtronic PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smith Nephew 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 Smith Nephew SNATS 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.