Correlation Between Edwards Lifesciences and Smith Nephew
Can any of the company-specific risk be diversified away by investing in both Edwards Lifesciences 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 Edwards Lifesciences and Smith Nephew 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 Smith Nephew SNATS, you can compare the effects of market volatilities on Edwards Lifesciences 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 Edwards Lifesciences with a short position of Smith Nephew. Check out your portfolio center. Please also check ongoing floating volatility patterns of Edwards Lifesciences and Smith Nephew.
Diversification Opportunities for Edwards Lifesciences and Smith Nephew
-0.47 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Edwards and Smith is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Edwards Lifesciences Corp 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 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 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 Edwards Lifesciences i.e., Edwards Lifesciences and Smith Nephew go up and down completely randomly.
Pair Corralation between Edwards Lifesciences and Smith Nephew
Allowing for the 90-day total investment horizon Edwards Lifesciences Corp is expected to under-perform the Smith Nephew. But the stock apears to be less risky and, when comparing its historical volatility, Edwards Lifesciences Corp is 1.13 times less risky than Smith Nephew. The stock trades about -0.19 of its potential returns per unit of risk. The Smith Nephew SNATS is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest 2,559 in Smith Nephew SNATS on January 26, 2024 and sell it today you would lose (102.00) from holding Smith Nephew SNATS or give up 3.99% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Edwards Lifesciences Corp vs. Smith Nephew SNATS
Performance |
| Timeline |
| Edwards Lifesciences Corp |
| Smith Nephew SNATS |
Edwards Lifesciences and Smith Nephew Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Edwards Lifesciences and Smith Nephew
The main advantage of trading using opposite Edwards Lifesciences and Smith Nephew positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Edwards Lifesciences 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 Edwards Lifesciences Corp 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.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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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