Correlation Between Align Technology and Medtronic PLC

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

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

Diversification Opportunities for Align Technology and Medtronic PLC

-0.35

Correlation Coefficient

Align Technology  Medtronic PLC

Very good diversification

The 3 months correlation between Align and Medtronic is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Align Technology and Medtronic PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medtronic PLC and Align Technology 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 Align Technology are associated (or correlated) with Medtronic PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medtronic PLC has no effect on the direction of Align Technology i.e., Align Technology and Medtronic PLC go up and down completely randomly.

Pair Corralation between Align Technology and Medtronic PLC

Given the investment horizon of 90 days Align Technology is expected to generate 2.39 times more return on investment than Medtronic PLC. However, Align Technology is 2.39 times more volatile than Medtronic PLC. It trades about 0.02 of its potential returns per unit of risk. Medtronic PLC is currently generating about -0.02 per unit of risk. If you would invest  31,089  in Align Technology on January 24, 2024 and sell it today you would lose (1,007) from holding Align Technology or give up 3.24% of portfolio value over 90 days.

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

Align Technology  vs.  Medtronic PLC

Align Technology

Risk-Adjusted Performance

10 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Align Technology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Align Technology displayed solid returns over the last few months and may actually be approaching a breakup point.

Medtronic PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medtronic PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Medtronic PLC is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Align Technology and Medtronic PLC

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

The idea behind Align Technology and Medtronic 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.

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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..