Correlation Between Zimmer Biomet and Tandem Diabetes

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

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

Diversification Opportunities for Zimmer Biomet and Tandem Diabetes

-0.55

Correlation Coefficient

Zimmer Biomet  Tandem Diabetes

Excellent diversification

The 3 months correlation between Zimmer and Tandem is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Zimmer Biomet Holdings and Tandem Diabetes Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tandem Diabetes Care and Zimmer Biomet 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 Zimmer Biomet Holdings are associated (or correlated) with Tandem Diabetes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tandem Diabetes Care has no effect on the direction of Zimmer Biomet i.e., Zimmer Biomet and Tandem Diabetes go up and down completely randomly.

Pair Corralation between Zimmer Biomet and Tandem Diabetes

Considering the 90-day investment horizon Zimmer Biomet Holdings is expected to under-perform the Tandem Diabetes. But the stock apears to be less risky and, when comparing its historical volatility, Zimmer Biomet Holdings is 3.88 times less risky than Tandem Diabetes. The stock trades about -0.15 of its potential returns per unit of risk. The Tandem Diabetes Care is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  3,010  in Tandem Diabetes Care on February 23, 2024 and sell it today you would earn a total of  2,129  from holding Tandem Diabetes Care or generate 70.73% return on investment over 90 days.

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

Zimmer Biomet Holdings  vs.  Tandem Diabetes Care

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 latest unsteady performance, the Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Tandem Diabetes Care

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tandem Diabetes Care are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental indicators, Tandem Diabetes displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zimmer Biomet and Tandem Diabetes

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

The idea behind Zimmer Biomet Holdings and Tandem Diabetes Care 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.