Correlation Between Bio Rad and Edwards Lifesciences

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Can any of the company-specific risk be diversified away by investing in both Bio Rad and Edwards Lifesciences 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 Bio Rad and Edwards Lifesciences into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bio Rad Laboratories and Edwards Lifesciences Corp, you can compare the effects of market volatilities on Bio Rad and Edwards Lifesciences 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 Bio Rad with a short position of Edwards Lifesciences. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bio Rad and Edwards Lifesciences.

Diversification Opportunities for Bio Rad and Edwards Lifesciences

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between Bio and Edwards is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Bio-Rad Laboratories and Edwards Lifesciences Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edwards Lifesciences Corp and Bio Rad 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 Bio Rad Laboratories are associated (or correlated) with Edwards Lifesciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edwards Lifesciences Corp has no effect on the direction of Bio Rad i.e., Bio Rad and Edwards Lifesciences go up and down completely randomly.

Pair Corralation between Bio Rad and Edwards Lifesciences

Considering the 90-day investment horizon Bio Rad is expected to generate 1.62 times less return on investment than Edwards Lifesciences. But when comparing it to its historical volatility, Bio Rad Laboratories is 1.16 times less risky than Edwards Lifesciences. It trades about 0.17 of its potential returns per unit of risk. Edwards Lifesciences Corp is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  8,651  in Edwards Lifesciences Corp on December 29, 2023 and sell it today you would earn a total of  864.00  from holding Edwards Lifesciences Corp or generate 9.99% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Bio-Rad Laboratories  vs.  Edwards Lifesciences Corp

 Performance 
       Timeline  
Bio-Rad Laboratories 

Risk-Adjusted Performance

6 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Bio Rad Laboratories are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, Bio Rad may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Edwards Lifesciences Corp 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Edwards Lifesciences Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Edwards Lifesciences showed solid returns over the last few months and may actually be approaching a breakup point.

Bio Rad and Edwards Lifesciences Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bio Rad and Edwards Lifesciences

The main advantage of trading using opposite Bio Rad and Edwards Lifesciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bio Rad position performs unexpectedly, Edwards Lifesciences 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 Edwards Lifesciences will offset losses from the drop in Edwards Lifesciences' long position.
The idea behind Bio Rad Laboratories and Edwards Lifesciences Corp 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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