Correlation Between Edwards Lifesciences and Electromed
Can any of the company-specific risk be diversified away by investing in both Edwards Lifesciences and Electromed 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 Electromed 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 Electromed, you can compare the effects of market volatilities on Edwards Lifesciences and Electromed 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 Electromed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Edwards Lifesciences and Electromed.
Diversification Opportunities for Edwards Lifesciences and Electromed
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Edwards and Electromed is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Edwards Lifesciences Corp and Electromed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electromed 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 Electromed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electromed has no effect on the direction of Edwards Lifesciences i.e., Edwards Lifesciences and Electromed go up and down completely randomly.
Pair Corralation between Edwards Lifesciences and Electromed
Allowing for the 90-day total investment horizon Edwards Lifesciences Corp is expected to under-perform the Electromed. But the stock apears to be less risky and, when comparing its historical volatility, Edwards Lifesciences Corp is 2.13 times less risky than Electromed. The stock trades about -0.19 of its potential returns per unit of risk. The Electromed is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,626 in Electromed on January 26, 2024 and sell it today you would earn a total of 47.00 from holding Electromed or generate 2.89% 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. Electromed
Performance |
Timeline |
Edwards Lifesciences Corp |
Electromed |
Edwards Lifesciences and Electromed Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Edwards Lifesciences and Electromed
The main advantage of trading using opposite Edwards Lifesciences and Electromed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Edwards Lifesciences position performs unexpectedly, Electromed 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 Electromed will offset losses from the drop in Electromed's long position.The idea behind Edwards Lifesciences Corp and Electromed 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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