Correlation Between Medtronic PLC and Zimmer Biomet

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

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

Diversification Opportunities for Medtronic PLC and Zimmer Biomet

0.2

Correlation Coefficient

Medtronic PLC  Zimmer Biomet

Modest diversification

The 3 months correlation between Medtronic and Zimmer is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Medtronic PLC and Zimmer Biomet Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zimmer Biomet Holdings and Medtronic PLC 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 Medtronic PLC are associated (or correlated) with Zimmer Biomet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zimmer Biomet Holdings has no effect on the direction of Medtronic PLC i.e., Medtronic PLC and Zimmer Biomet go up and down completely randomly.

Pair Corralation between Medtronic PLC and Zimmer Biomet

Considering the 90-day investment horizon Medtronic PLC is expected to generate 0.87 times more return on investment than Zimmer Biomet. However, Medtronic PLC is 1.15 times less risky than Zimmer Biomet. It trades about -0.03 of its potential returns per unit of risk. Zimmer Biomet Holdings is currently generating about -0.03 per unit of risk. If you would invest  8,678  in Medtronic PLC on January 19, 2024 and sell it today you would lose (759.00) from holding Medtronic PLC or give up 8.75% of portfolio value over 90 days.

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

Medtronic PLC  vs.  Zimmer Biomet Holdings

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 latest weak performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Zimmer Biomet Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zimmer Biomet Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Zimmer Biomet is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Medtronic PLC and Zimmer Biomet

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

The idea behind Medtronic PLC and Zimmer Biomet Holdings 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.