Correlation Between BICO Group and Smith Nephew
Can any of the company-specific risk be diversified away by investing in both BICO Group 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 BICO Group and Smith Nephew into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BICO Group AB and Smith Nephew plc, you can compare the effects of market volatilities on BICO Group 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 BICO Group with a short position of Smith Nephew. Check out your portfolio center. Please also check ongoing floating volatility patterns of BICO Group and Smith Nephew.
Diversification Opportunities for BICO Group and Smith Nephew
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BICO and Smith is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding BICO Group AB 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 BICO Group 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 BICO Group AB 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 BICO Group i.e., BICO Group and Smith Nephew go up and down completely randomly.
Pair Corralation between BICO Group and Smith Nephew
If you would invest 88.00 in BICO Group AB on August 26, 2024 and sell it today you would earn a total of 0.00 from holding BICO Group AB or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BICO Group AB vs. Smith Nephew plc
Performance |
| Timeline |
| BICO Group AB |
| Smith Nephew plc |
BICO Group and Smith Nephew Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BICO Group and Smith Nephew
The main advantage of trading using opposite BICO Group and Smith Nephew positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BICO Group 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 BICO Group AB 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.Check out your portfolio center.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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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