Correlation Between Electromed and Medtronic PLC
Can any of the company-specific risk be diversified away by investing in both Electromed and Medtronic PLC 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 Electromed and Medtronic PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Electromed and Medtronic PLC, you can compare the effects of market volatilities on Electromed and Medtronic PLC 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 Electromed with a short position of Medtronic PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electromed and Medtronic PLC.
Diversification Opportunities for Electromed and Medtronic PLC
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Electromed and Medtronic is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Electromed and Medtronic PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medtronic PLC and Electromed 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 Electromed are associated (or correlated) with Medtronic PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medtronic PLC has no effect on the direction of Electromed i.e., Electromed and Medtronic PLC go up and down completely randomly.
Pair Corralation between Electromed and Medtronic PLC
Given the investment horizon of 90 days Electromed is expected to generate 1.95 times more return on investment than Medtronic PLC. However, Electromed is 1.95 times more volatile than Medtronic PLC. It trades about 0.06 of its potential returns per unit of risk. Medtronic PLC is currently generating about -0.13 per unit of risk. If you would invest 1,626 in Electromed on January 26, 2024 and sell it today you would earn a total of 47.00 from holding Electromed or generate 2.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Electromed vs. Medtronic PLC
Performance |
| Timeline |
| Electromed |
| Medtronic PLC |
Electromed and Medtronic PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Electromed and Medtronic PLC
The main advantage of trading using opposite Electromed and Medtronic PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electromed position performs unexpectedly, Medtronic PLC 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 Medtronic PLC will offset losses from the drop in Medtronic PLC's long position.The idea behind Electromed and Medtronic PLC 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.Check out your portfolio center.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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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