Correlation Between Edwards Lifesciences and Select Medical

Can any of the company-specific risk be diversified away by investing in both Edwards Lifesciences and Select Medical 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 Select Medical 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 Select Medical Holdings, you can compare the effects of market volatilities on Edwards Lifesciences and Select Medical 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 Select Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Edwards Lifesciences and Select Medical.

Diversification Opportunities for Edwards Lifesciences and Select Medical

0.17

Correlation Coefficient

Edwards Lifesciences  Select Medical

Average diversification

The 3 months correlation between Edwards and Select is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Edwards Lifesciences Corp and Select Medical Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Medical Holdings 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 Select Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Medical Holdings has no effect on the direction of Edwards Lifesciences i.e., Edwards Lifesciences and Select Medical go up and down completely randomly.

Pair Corralation between Edwards Lifesciences and Select Medical

Allowing for the 90-day total investment horizon Edwards Lifesciences Corp is expected to under-perform the Select Medical. In addition to that, Edwards Lifesciences is 1.37 times more volatile than Select Medical Holdings. It trades about -0.02 of its total potential returns per unit of risk. Select Medical Holdings is currently generating about 0.02 per unit of volatility. If you would invest  1,891  in Select Medical Holdings on September 27, 2024 and sell it today you would earn a total of  22.00  from holding Select Medical Holdings or generate 1.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

Edwards Lifesciences Corp  vs.  Select Medical Holdings

Edwards Lifesciences Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Edwards Lifesciences Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Edwards Lifesciences showed solid returns over the last few months and may actually be approaching a breakup point.

Select Medical Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Select Medical Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Select Medical is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Edwards Lifesciences and Select Medical

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

The idea behind Edwards Lifesciences Corp and Select Medical Holdings 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.