Correlation Between Edwards Lifesciences and Medtronic Plc

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

By analyzing existing cross correlation between Edwards Lifesciences and Medtronic plc, you can compare the effects of market volatilities on Edwards Lifesciences and Medtronic Plc 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 Medtronic Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Edwards Lifesciences and Medtronic Plc.

Diversification Opportunities for Edwards Lifesciences and Medtronic Plc

0.27

Correlation Coefficient

Edwards Lifesciences  Medtronic Plc

Modest diversification

The 3 months correlation between Edwards and Medtronic is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Edwards Lifesciences and Medtronic plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medtronic plc 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 are associated (or correlated) with Medtronic Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medtronic plc has no effect on the direction of Edwards Lifesciences i.e., Edwards Lifesciences and Medtronic Plc go up and down completely randomly.

Pair Corralation between Edwards Lifesciences and Medtronic Plc

Assuming the 90 days trading horizon Edwards Lifesciences is expected to generate 1.7 times more return on investment than Medtronic Plc. However, Edwards Lifesciences is 1.7 times more volatile than Medtronic plc. It trades about 0.06 of its potential returns per unit of risk. Medtronic plc is currently generating about 0.08 per unit of risk. If you would invest  8,544  in Edwards Lifesciences on September 28, 2024 and sell it today you would earn a total of  3,096  from holding Edwards Lifesciences or generate 36.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	83.96%
Values	Daily Returns

Edwards Lifesciences  vs.  Medtronic plc

Edwards Lifesciences

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Edwards Lifesciences are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Edwards Lifesciences sustained solid returns over the last few months and may actually be approaching a breakup point.

Medtronic plc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Medtronic plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Medtronic Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Edwards Lifesciences and Medtronic Plc

The main advantage of trading using opposite Edwards Lifesciences and Medtronic Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Edwards Lifesciences position performs unexpectedly, Medtronic Plc 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 Medtronic Plc will offset losses from the drop in Medtronic Plc's long position.

The idea behind Edwards Lifesciences and Medtronic plc 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.