Correlation Between Embecta Corp and Baxter International

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

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

Diversification Opportunities for Embecta Corp and Baxter International

-0.3

Correlation Coefficient

Embecta Corp  Baxter International

Very good diversification

The 3 months correlation between Embecta and Baxter is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Embecta Corp and Baxter International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baxter International and Embecta Corp 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 Embecta Corp are associated (or correlated) with Baxter International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baxter International has no effect on the direction of Embecta Corp i.e., Embecta Corp and Baxter International go up and down completely randomly.

Pair Corralation between Embecta Corp and Baxter International

Given the investment horizon of 90 days Embecta Corp is expected to under-perform the Baxter International. In addition to that, Embecta Corp is 1.86 times more volatile than Baxter International. It trades about -0.38 of its total potential returns per unit of risk. Baxter International is currently generating about -0.19 per unit of volatility. If you would invest  4,291  in Baxter International on February 2, 2024 and sell it today you would lose (257.00) from holding Baxter International or give up 5.99% of portfolio value over 90 days.

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

Embecta Corp  vs.  Baxter International

Embecta Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Embecta Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Baxter International

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Baxter International are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Baxter International is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Embecta Corp and Baxter International

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

The idea behind Embecta Corp and Baxter International 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.