Correlation Between ResMed and Smith Nephew
Can any of the company-specific risk be diversified away by investing in both ResMed and Smith Nephew 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 ResMed and Smith Nephew into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ResMed Inc and Smith Nephew SNATS, you can compare the effects of market volatilities on ResMed and Smith Nephew 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 ResMed with a short position of Smith Nephew. Check out your portfolio center. Please also check ongoing floating volatility patterns of ResMed and Smith Nephew.
Diversification Opportunities for ResMed and Smith Nephew
-0.06 | Correlation Coefficient |
Good diversification
The 3 months correlation between ResMed and Smith is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding ResMed Inc and Smith Nephew SNATS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Nephew SNATS and ResMed 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 ResMed Inc are associated (or correlated) with Smith Nephew. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Nephew SNATS has no effect on the direction of ResMed i.e., ResMed and Smith Nephew go up and down completely randomly.
Pair Corralation between ResMed and Smith Nephew
Considering the 90-day investment horizon ResMed Inc is expected to under-perform the Smith Nephew. In addition to that, ResMed is 1.51 times more volatile than Smith Nephew SNATS. It trades about -0.11 of its total potential returns per unit of risk. Smith Nephew SNATS is currently generating about -0.12 per unit of volatility. If you would invest 2,559 in Smith Nephew SNATS on January 26, 2024 and sell it today you would lose (102.00) from holding Smith Nephew SNATS or give up 3.99% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ResMed Inc vs. Smith Nephew SNATS
Performance |
| Timeline |
| ResMed Inc |
| Smith Nephew SNATS |
ResMed and Smith Nephew Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ResMed and Smith Nephew
The main advantage of trading using opposite ResMed and Smith Nephew positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ResMed position performs unexpectedly, Smith Nephew 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 Smith Nephew will offset losses from the drop in Smith Nephew's long position.| ResMed vs. Teleflex Incorporated | ResMed vs. West Pharmaceutical Services | ResMed vs. Alcon AG | ResMed vs. ICU Medical |
Check out your portfolio center.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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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