Correlation Between Smith Nephew and Smith Nephew

Can any of the company-specific risk be diversified away by investing in both Smith Nephew and Smith Nephew 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 Smith Nephew 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 Smith Nephew plc, you can compare the effects of market volatilities on Smith Nephew and Smith Nephew 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 Smith Nephew. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith Nephew and Smith Nephew.

Diversification Opportunities for Smith Nephew and Smith Nephew

0.88

Correlation Coefficient

Smith Nephew  Smith Nephew

Very poor diversification

The 3 months correlation between Smith and Smith is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Smith Nephew SNATS and Smith Nephew plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Nephew plc 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 Smith Nephew. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Nephew plc has no effect on the direction of Smith Nephew i.e., Smith Nephew and Smith Nephew go up and down completely randomly.

Pair Corralation between Smith Nephew and Smith Nephew

Considering the 90-day investment horizon Smith Nephew is expected to generate 3.11 times less return on investment than Smith Nephew. But when comparing it to its historical volatility, Smith Nephew SNATS is 1.74 times less risky than Smith Nephew. It trades about 0.18 of its potential returns per unit of risk. Smith Nephew plc is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  1,149  in Smith Nephew plc on September 12, 2024 and sell it today you would earn a total of  141.00  from holding Smith Nephew plc or generate 12.27% return on investment over 90 days.

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

Smith Nephew SNATS  vs.  Smith Nephew plc

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 weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Smith Nephew plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Nephew plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Smith Nephew and Smith Nephew

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

The idea behind Smith Nephew SNATS and Smith Nephew plc 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 Anywhere module to track or share privately all of your investments from the convenience of any device.