Correlation Between Smith Nephew and Charles River

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

By analyzing existing cross correlation between Smith Nephew SNATS and Charles River Laboratories, you can compare the effects of market volatilities on Smith Nephew and Charles River 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 Smith Nephew with a short position of Charles River. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith Nephew and Charles River.

Diversification Opportunities for Smith Nephew and Charles River

-0.05

Correlation Coefficient

Smith Nephew  Charles River

Good diversification

The 3 months correlation between Smith and Charles is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Smith Nephew SNATS and Charles River Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charles River Labora and Smith Nephew 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 Smith Nephew SNATS are associated (or correlated) with Charles River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charles River Labora has no effect on the direction of Smith Nephew i.e., Smith Nephew and Charles River go up and down completely randomly.

Pair Corralation between Smith Nephew and Charles River

Considering the 90-day investment horizon Smith Nephew SNATS is expected to generate 0.84 times more return on investment than Charles River. However, Smith Nephew SNATS is 1.19 times less risky than Charles River. It trades about -0.09 of its potential returns per unit of risk. Charles River Laboratories is currently generating about -0.15 per unit of risk. If you would invest  2,600  in Smith Nephew SNATS on February 3, 2024 and sell it today you would lose (156.00) from holding Smith Nephew SNATS or give up 6.0% of portfolio value over 90 days.

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

Smith Nephew SNATS  vs.  Charles River Laboratories

Smith Nephew SNATS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Nephew SNATS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Charles River Labora

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Charles River Laboratories are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Charles River may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Smith Nephew and Charles River

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

The idea behind Smith Nephew SNATS and Charles River Laboratories 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.