Correlation Between Speed Medical and Medical Packaging

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

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

Diversification Opportunities for Speed Medical and Medical Packaging

-0.18

Correlation Coefficient

Speed Medical  Medical Packaging

Good diversification

The 3 months correlation between Speed and Medical is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Speed Medical and Medical Packaging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medical Packaging and Speed Medical 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 Speed Medical are associated (or correlated) with Medical Packaging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medical Packaging has no effect on the direction of Speed Medical i.e., Speed Medical and Medical Packaging go up and down completely randomly.

Pair Corralation between Speed Medical and Medical Packaging

Assuming the 90 days trading horizon Speed Medical is expected to generate 1.72 times less return on investment than Medical Packaging. But when comparing it to its historical volatility, Speed Medical is 1.27 times less risky than Medical Packaging. It trades about 0.04 of its potential returns per unit of risk. Medical Packaging is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  71.00  in Medical Packaging on December 4, 2024 and sell it today you would earn a total of  47.00  from holding Medical Packaging or generate 66.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	86.75%
Values	Daily Returns

Speed Medical  vs.  Medical Packaging

Speed Medical

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Speed Medical are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Speed Medical reported solid returns over the last few months and may actually be approaching a breakup point.

Medical Packaging

Risk-Adjusted Performance

Very Weak

Over the last 90 days Medical Packaging has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Medical Packaging is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Speed Medical and Medical Packaging

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

The idea behind Speed Medical and Medical Packaging 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.