Correlation Between Baxter International and Nephros

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

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

Diversification Opportunities for Baxter International and Nephros

-0.6

Correlation Coefficient

Baxter International  Nephros

Excellent diversification

The 3 months correlation between Baxter and Nephros is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Baxter International and Nephros in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nephros 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 Nephros. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nephros has no effect on the direction of Baxter International i.e., Baxter International and Nephros go up and down completely randomly.

Pair Corralation between Baxter International and Nephros

Considering the 90-day investment horizon Baxter International is expected to under-perform the Nephros. But the stock apears to be less risky and, when comparing its historical volatility, Baxter International is 2.17 times less risky than Nephros. The stock trades about -0.17 of its potential returns per unit of risk. The Nephros is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  221.00  in Nephros on January 20, 2024 and sell it today you would lose (11.00) from holding Nephros or give up 4.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Baxter International  vs.  Nephros

Baxter International

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Baxter International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Baxter International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Nephros

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nephros has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Baxter International and Nephros

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

The idea behind Baxter International and Nephros 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.