Correlation Between Medtronic PLC and Stryker

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

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

Diversification Opportunities for Medtronic PLC and Stryker

0.37

Correlation Coefficient

Medtronic PLC  Stryker

Weak diversification

The 3 months correlation between Medtronic and Stryker is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Medtronic PLC and Stryker in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stryker 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 Stryker. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stryker has no effect on the direction of Medtronic PLC i.e., Medtronic PLC and Stryker go up and down completely randomly.

Pair Corralation between Medtronic PLC and Stryker

Assuming the 90 days horizon Medtronic PLC is expected to generate 21.91 times less return on investment than Stryker. But when comparing it to its historical volatility, Medtronic PLC is 1.39 times less risky than Stryker. It trades about 0.02 of its potential returns per unit of risk. Stryker is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  33,720  in Stryker on September 5, 2024 and sell it today you would earn a total of  3,380  from holding Stryker or generate 10.02% return on investment over 90 days.

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

Medtronic PLC  vs.  Stryker

Medtronic PLC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Medtronic PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Medtronic PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Stryker

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Stryker are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Stryker reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Medtronic PLC and Stryker

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

The idea behind Medtronic PLC and Stryker 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.