Correlation Between Edwards Lifesciences and DXP Enterprises
Can any of the company-specific risk be diversified away by investing in both Edwards Lifesciences and DXP Enterprises 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 Edwards Lifesciences and DXP Enterprises into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Edwards Lifesciences Corp and DXP Enterprises, you can compare the effects of market volatilities on Edwards Lifesciences and DXP Enterprises 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 Edwards Lifesciences with a short position of DXP Enterprises. Check out your portfolio center. Please also check ongoing floating volatility patterns of Edwards Lifesciences and DXP Enterprises.
Diversification Opportunities for Edwards Lifesciences and DXP Enterprises
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Edwards and DXP is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Edwards Lifesciences Corp and DXP Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DXP Enterprises and Edwards Lifesciences 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 Edwards Lifesciences Corp are associated (or correlated) with DXP Enterprises. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DXP Enterprises has no effect on the direction of Edwards Lifesciences i.e., Edwards Lifesciences and DXP Enterprises go up and down completely randomly.
Pair Corralation between Edwards Lifesciences and DXP Enterprises
Allowing for the 90-day total investment horizon Edwards Lifesciences is expected to generate 14.69 times less return on investment than DXP Enterprises. But when comparing it to its historical volatility, Edwards Lifesciences Corp is 1.48 times less risky than DXP Enterprises. It trades about 0.01 of its potential returns per unit of risk. DXP Enterprises is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 2,645 in DXP Enterprises on January 26, 2024 and sell it today you would earn a total of 2,546 from holding DXP Enterprises or generate 96.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Edwards Lifesciences Corp vs. DXP Enterprises
Performance |
| Timeline |
| Edwards Lifesciences Corp |
| DXP Enterprises |
Edwards Lifesciences and DXP Enterprises Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Edwards Lifesciences and DXP Enterprises
The main advantage of trading using opposite Edwards Lifesciences and DXP Enterprises positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Edwards Lifesciences position performs unexpectedly, DXP Enterprises 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 DXP Enterprises will offset losses from the drop in DXP Enterprises' long position.The idea behind Edwards Lifesciences Corp and DXP Enterprises 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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