Correlation Between Avita Medical and Solventum Corp

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

By analyzing existing cross correlation between Avita Medical and Solventum Corp, you can compare the effects of market volatilities on Avita Medical and Solventum Corp 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 Avita Medical with a short position of Solventum Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avita Medical and Solventum Corp.

Diversification Opportunities for Avita Medical and Solventum Corp

-0.03

Correlation Coefficient

Avita Medical  Solventum Corp

Good diversification

The 3 months correlation between Avita and Solventum is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Avita Medical and Solventum Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solventum Corp and Avita Medical 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 Avita Medical are associated (or correlated) with Solventum Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solventum Corp has no effect on the direction of Avita Medical i.e., Avita Medical and Solventum Corp go up and down completely randomly.

Pair Corralation between Avita Medical and Solventum Corp

Given the investment horizon of 90 days Avita Medical is expected to under-perform the Solventum Corp. In addition to that, Avita Medical is 2.6 times more volatile than Solventum Corp. It trades about -0.02 of its total potential returns per unit of risk. Solventum Corp is currently generating about 0.16 per unit of volatility. If you would invest  6,712  in Solventum Corp on September 17, 2024 and sell it today you would earn a total of  244.00  from holding Solventum Corp or generate 3.64% return on investment over 90 days.

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

Avita Medical  vs.  Solventum Corp

Avita Medical

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Avita Medical are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating technical and fundamental indicators, Avita Medical disclosed solid returns over the last few months and may actually be approaching a breakup point.

Solventum Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solventum Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Solventum Corp is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Avita Medical and Solventum Corp

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

The idea behind Avita Medical and Solventum Corp 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.