Correlation Between Woolworths and Medical Developments

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

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

Diversification Opportunities for Woolworths and Medical Developments

0.02

Correlation Coefficient

Woolworths  Medical Developments

Significant diversification

The 3 months correlation between Woolworths and Medical is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Woolworths and Medical Developments Internati in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medical Developments and Woolworths 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 Woolworths are associated (or correlated) with Medical Developments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medical Developments has no effect on the direction of Woolworths i.e., Woolworths and Medical Developments go up and down completely randomly.

Pair Corralation between Woolworths and Medical Developments

Assuming the 90 days trading horizon Woolworths is expected to under-perform the Medical Developments. But the stock apears to be less risky and, when comparing its historical volatility, Woolworths is 2.22 times less risky than Medical Developments. The stock trades about -0.19 of its potential returns per unit of risk. The Medical Developments International is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  46.00  in Medical Developments International on August 31, 2024 and sell it today you would lose (5.00) from holding Medical Developments International or give up 10.87% of portfolio value over 90 days.

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

Woolworths  vs.  Medical Developments Internati

Woolworths

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Woolworths has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Medical Developments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medical Developments International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Woolworths and Medical Developments

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

The idea behind Woolworths and Medical Developments International 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.