Correlation Between Edwards Lifesciences and Smith Nephew

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

Diversification Opportunities for Edwards Lifesciences and Smith Nephew

-0.37

Correlation Coefficient

Edwards Lifesciences  Smith Nephew

Very good diversification

The 3 months correlation between Edwards and Smith is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Edwards Lifesciences Corp and Smith Nephew plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Nephew 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 Corp are associated (or correlated) with Smith Nephew. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Nephew plc has no effect on the direction of Edwards Lifesciences i.e., Edwards Lifesciences and Smith Nephew go up and down completely randomly.

Pair Corralation between Edwards Lifesciences and Smith Nephew

Allowing for the 90-day total investment horizon Edwards Lifesciences Corp is expected to under-perform the Smith Nephew. But the stock apears to be less risky and, when comparing its historical volatility, Edwards Lifesciences Corp is 1.79 times less risky than Smith Nephew. The stock trades about -0.05 of its potential returns per unit of risk. The Smith Nephew plc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,278  in Smith Nephew plc on December 27, 2024 and sell it today you would earn a total of  155.00  from holding Smith Nephew plc or generate 12.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.16%
Values	Daily Returns

Edwards Lifesciences Corp  vs.  Smith Nephew plc

Edwards Lifesciences Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Edwards Lifesciences Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Edwards Lifesciences is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Smith Nephew plc

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Smith Nephew plc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Smith Nephew reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Edwards Lifesciences and Smith Nephew

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

The idea behind Edwards Lifesciences Corp and Smith Nephew 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.