Correlation Between Medtronic PLC and Baxter International

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

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

Diversification Opportunities for Medtronic PLC and Baxter International

0.58

Correlation Coefficient

Medtronic PLC  Baxter International

Very weak diversification

The 3 months correlation between Medtronic and Baxter is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Medtronic PLC and Baxter International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baxter International 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 Baxter International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baxter International has no effect on the direction of Medtronic PLC i.e., Medtronic PLC and Baxter International go up and down completely randomly.

Pair Corralation between Medtronic PLC and Baxter International

Considering the 90-day investment horizon Medtronic PLC is expected to generate 0.65 times more return on investment than Baxter International. However, Medtronic PLC is 1.54 times less risky than Baxter International. It trades about -0.05 of its potential returns per unit of risk. Baxter International is currently generating about -0.15 per unit of risk. If you would invest  8,869  in Medtronic PLC on September 5, 2024 and sell it today you would lose (298.00) from holding Medtronic PLC or give up 3.36% of portfolio value over 90 days.

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

Medtronic PLC  vs.  Baxter International

Medtronic PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medtronic PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Medtronic PLC is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Baxter International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baxter International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Medtronic PLC and Baxter International

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

The idea behind Medtronic PLC and Baxter International 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.