Correlation Between Smith Nephew and STERIS Plc

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

By analyzing existing cross correlation between Smith Nephew plc and STERIS plc, you can compare the effects of market volatilities on Smith Nephew and STERIS 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 STERIS Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith Nephew and STERIS Plc.

Diversification Opportunities for Smith Nephew and STERIS Plc

0.46

Correlation Coefficient

Smith Nephew  STERIS Plc

Very weak diversification

The 3 months correlation between Smith and STERIS is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Smith Nephew plc and STERIS plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STERIS 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 plc are associated (or correlated) with STERIS Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STERIS plc has no effect on the direction of Smith Nephew i.e., Smith Nephew and STERIS Plc go up and down completely randomly.

Pair Corralation between Smith Nephew and STERIS Plc

Assuming the 90 days horizon Smith Nephew plc is expected to generate 1.92 times more return on investment than STERIS Plc. However, Smith Nephew is 1.92 times more volatile than STERIS plc. It trades about 0.01 of its potential returns per unit of risk. STERIS plc is currently generating about 0.01 per unit of risk. If you would invest  1,390  in Smith Nephew plc on October 7, 2024 and sell it today you would lose (112.00) from holding Smith Nephew plc or give up 8.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	84.88%
Values	Daily Returns

Smith Nephew plc  vs.  STERIS plc

Smith Nephew plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Nephew plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

STERIS plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STERIS plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Smith Nephew and STERIS Plc

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

The idea behind Smith Nephew plc and STERIS 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.