Correlation Between Baxter International and Exelon

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

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

Diversification Opportunities for Baxter International and Exelon

0.75

Correlation Coefficient

Baxter International  Exelon

Poor diversification

The 3 months correlation between Baxter and Exelon is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Baxter International and Exelon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exelon and Baxter International 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 Baxter International are associated (or correlated) with Exelon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exelon has no effect on the direction of Baxter International i.e., Baxter International and Exelon go up and down completely randomly.

Pair Corralation between Baxter International and Exelon

Considering the 90-day investment horizon Baxter International is expected to under-perform the Exelon. In addition to that, Baxter International is 1.34 times more volatile than Exelon. It trades about -0.1 of its total potential returns per unit of risk. Exelon is currently generating about 0.09 per unit of volatility. If you would invest  3,685  in Exelon on January 24, 2024 and sell it today you would earn a total of  82.00  from holding Exelon or generate 2.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Baxter International  vs.  Exelon

Baxter International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Baxter International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Baxter International may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Exelon

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Exelon are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Exelon may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Baxter International and Exelon

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

The idea behind Baxter International and Exelon 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..