Correlation Between Smith Nephew and ZimVie

Can any of the company-specific risk be diversified away by investing in both Smith Nephew and ZimVie 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 ZimVie 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 ZimVie Inc, you can compare the effects of market volatilities on Smith Nephew and ZimVie 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 ZimVie. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith Nephew and ZimVie.

Diversification Opportunities for Smith Nephew and ZimVie

0.37

Correlation Coefficient

Smith Nephew  ZimVie

Weak diversification

The 3 months correlation between Smith and ZimVie is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Smith Nephew plc and ZimVie Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZimVie Inc 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 ZimVie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZimVie Inc has no effect on the direction of Smith Nephew i.e., Smith Nephew and ZimVie go up and down completely randomly.

Pair Corralation between Smith Nephew and ZimVie

Assuming the 90 days horizon Smith Nephew is expected to generate 9.87 times less return on investment than ZimVie. But when comparing it to its historical volatility, Smith Nephew plc is 1.67 times less risky than ZimVie. It trades about 0.01 of its potential returns per unit of risk. ZimVie Inc is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  869.00  in ZimVie Inc on October 7, 2024 and sell it today you would earn a total of  530.00  from holding ZimVie Inc or generate 60.99% return on investment over 90 days.

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

Smith Nephew plc  vs.  ZimVie Inc

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.

ZimVie Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ZimVie Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's primary indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Smith Nephew and ZimVie

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

The idea behind Smith Nephew plc and ZimVie Inc 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.