Correlation Between ResMed and ICU Medical

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

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

Diversification Opportunities for ResMed and ICU Medical

-0.31

Correlation Coefficient

ResMed  ICU Medical

Very good diversification

The 3 months correlation between ResMed and ICU is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding ResMed Inc and ICU Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ICU Medical and ResMed 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 ResMed Inc are associated (or correlated) with ICU Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ICU Medical has no effect on the direction of ResMed i.e., ResMed and ICU Medical go up and down completely randomly.

Pair Corralation between ResMed and ICU Medical

Considering the 90-day investment horizon ResMed Inc is expected to generate 2.4 times more return on investment than ICU Medical. However, ResMed is 2.4 times more volatile than ICU Medical. It trades about 0.14 of its potential returns per unit of risk. ICU Medical is currently generating about -0.17 per unit of risk. If you would invest  18,932  in ResMed Inc on February 1, 2024 and sell it today you would earn a total of  2,467  from holding ResMed Inc or generate 13.03% return on investment over 90 days.

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

ResMed Inc  vs.  ICU Medical

ResMed Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ResMed Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, ResMed exhibited solid returns over the last few months and may actually be approaching a breakup point.

ICU Medical

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ICU Medical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, ICU Medical may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with ResMed and ICU Medical

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

The idea behind ResMed Inc and ICU Medical 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.