Correlation Between Medtronic PLC and Insulet

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

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

Diversification Opportunities for Medtronic PLC and Insulet

-0.44

Correlation Coefficient

Medtronic PLC  Insulet

Very good diversification

The 3 months correlation between Medtronic and Insulet is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Medtronic PLC and Insulet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insulet 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 Insulet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insulet has no effect on the direction of Medtronic PLC i.e., Medtronic PLC and Insulet go up and down completely randomly.

Pair Corralation between Medtronic PLC and Insulet

Considering the 90-day investment horizon Medtronic PLC is expected to under-perform the Insulet. But the stock apears to be less risky and, when comparing its historical volatility, Medtronic PLC is 1.61 times less risky than Insulet. The stock trades about -0.02 of its potential returns per unit of risk. The Insulet is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  20,277  in Insulet on August 30, 2024 and sell it today you would earn a total of  6,415  from holding Insulet or generate 31.64% return on investment over 90 days.

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

Medtronic PLC  vs.  Insulet

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.

Insulet

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Insulet are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Insulet exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Medtronic PLC and Insulet

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

The idea behind Medtronic PLC and Insulet 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .