Correlation Between Align Technology and Edwards Lifesciences

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

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

Diversification Opportunities for Align Technology and Edwards Lifesciences

0.22

Correlation Coefficient

Align Technology  Edwards Lifesciences

Modest diversification

The 3 months correlation between Align and Edwards is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Align Technology and Edwards Lifesciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edwards Lifesciences and Align Technology 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 Align Technology 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 has no effect on the direction of Align Technology i.e., Align Technology and Edwards Lifesciences go up and down completely randomly.

Pair Corralation between Align Technology and Edwards Lifesciences

Assuming the 90 days horizon Align Technology is expected to generate 0.75 times more return on investment than Edwards Lifesciences. However, Align Technology is 1.33 times less risky than Edwards Lifesciences. It trades about -0.02 of its potential returns per unit of risk. Edwards Lifesciences is currently generating about -0.02 per unit of risk. If you would invest  22,380  in Align Technology on October 2, 2024 and sell it today you would lose (2,190) from holding Align Technology or give up 9.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Align Technology  vs.  Edwards Lifesciences

Align Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Align Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Align Technology is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Edwards Lifesciences

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Edwards Lifesciences are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Edwards Lifesciences reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Align Technology and Edwards Lifesciences

The main advantage of trading using opposite Align Technology and Edwards Lifesciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Align Technology 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 Align Technology and Edwards Lifesciences 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.