Correlation Between Arch Therapeutics and Edwards Lifesciences

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

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

Diversification Opportunities for Arch Therapeutics and Edwards Lifesciences

-0.77

Correlation Coefficient

Arch Therapeutics  Edwards Lifesciences

Pay attention - limited upside

The 3 months correlation between Arch and Edwards is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Arch Therapeutics 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 Arch Therapeutics 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 Arch Therapeutics 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 Arch Therapeutics i.e., Arch Therapeutics and Edwards Lifesciences go up and down completely randomly.

Pair Corralation between Arch Therapeutics and Edwards Lifesciences

Given the investment horizon of 90 days Arch Therapeutics is expected to under-perform the Edwards Lifesciences. In addition to that, Arch Therapeutics is 5.66 times more volatile than Edwards Lifesciences Corp. It trades about -0.26 of its total potential returns per unit of risk. Edwards Lifesciences Corp is currently generating about -0.19 per unit of volatility. If you would invest  9,342  in Edwards Lifesciences Corp on January 26, 2024 and sell it today you would lose (481.00) from holding Edwards Lifesciences Corp or give up 5.15% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Arch Therapeutics  vs.  Edwards Lifesciences Corp

Arch Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arch Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Edwards Lifesciences Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Edwards Lifesciences Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Edwards Lifesciences showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arch Therapeutics and Edwards Lifesciences

The main advantage of trading using opposite Arch Therapeutics and Edwards Lifesciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arch Therapeutics 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 Arch Therapeutics 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.

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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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.