Correlation Between Venus Concept and Smith Nephew

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

By analyzing existing cross correlation between Venus Concept and Smith Nephew SNATS, you can compare the effects of market volatilities on Venus Concept 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 Venus Concept with a short position of Smith Nephew. Check out your portfolio center. Please also check ongoing floating volatility patterns of Venus Concept and Smith Nephew.

Diversification Opportunities for Venus Concept and Smith Nephew

0.74

Correlation Coefficient

Venus Concept  Smith Nephew

Poor diversification

The 3 months correlation between Venus and Smith is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Venus Concept and Smith Nephew SNATS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Nephew SNATS and Venus Concept 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 Venus Concept 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 SNATS has no effect on the direction of Venus Concept i.e., Venus Concept and Smith Nephew go up and down completely randomly.

Pair Corralation between Venus Concept and Smith Nephew

Given the investment horizon of 90 days Venus Concept is expected to under-perform the Smith Nephew. In addition to that, Venus Concept is 1.73 times more volatile than Smith Nephew SNATS. It trades about -0.09 of its total potential returns per unit of risk. Smith Nephew SNATS is currently generating about -0.15 per unit of volatility. If you would invest  2,885  in Smith Nephew SNATS on August 31, 2024 and sell it today you would lose (314.00) from holding Smith Nephew SNATS or give up 10.88% of portfolio value over 90 days.

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

Venus Concept  vs.  Smith Nephew SNATS

Venus Concept

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Venus Concept has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Venus Concept is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

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 December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Venus Concept and Smith Nephew

The main advantage of trading using opposite Venus Concept and Smith Nephew positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Venus Concept 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 Venus Concept and Smith Nephew SNATS 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.