Correlation Between M3 and Pro Medicus

Can any of the company-specific risk be diversified away by investing in both M3 and Pro Medicus 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 M3 and Pro Medicus into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between M3 Inc and Pro Medicus Limited, you can compare the effects of market volatilities on M3 and Pro Medicus 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 M3 with a short position of Pro Medicus. Check out your portfolio center. Please also check ongoing floating volatility patterns of M3 and Pro Medicus.

Diversification Opportunities for M3 and Pro Medicus

-0.19

Correlation Coefficient

M3  Pro Medicus

Good diversification

The 3 months correlation between M3 and Pro is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding M3 Inc and Pro Medicus Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pro Medicus Limited and M3 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 M3 Inc are associated (or correlated) with Pro Medicus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pro Medicus Limited has no effect on the direction of M3 i.e., M3 and Pro Medicus go up and down completely randomly.

Pair Corralation between M3 and Pro Medicus

Assuming the 90 days horizon M3 is expected to generate 4.8 times less return on investment than Pro Medicus. But when comparing it to its historical volatility, M3 Inc is 13.47 times less risky than Pro Medicus. It trades about 0.22 of its potential returns per unit of risk. Pro Medicus Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  6,370  in Pro Medicus Limited on January 19, 2024 and sell it today you would earn a total of  248.00  from holding Pro Medicus Limited or generate 3.89% return on investment over 90 days.

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

M3 Inc  vs.  Pro Medicus Limited

M3 Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days M3 Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pro Medicus Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pro Medicus Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Pro Medicus may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with M3 and Pro Medicus

The main advantage of trading using opposite M3 and Pro Medicus positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if M3 position performs unexpectedly, Pro Medicus 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 Pro Medicus will offset losses from the drop in Pro Medicus' long position.

The idea behind M3 Inc and Pro Medicus Limited 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.