Correlation Between Edwards Lifesciences and Tandem Diabetes

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

Diversification Opportunities for Edwards Lifesciences and Tandem Diabetes

0.21

Correlation Coefficient

Edwards Lifesciences  Tandem Diabetes

Modest diversification

The 3 months correlation between Edwards and Tandem is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Edwards Lifesciences Corp and Tandem Diabetes Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tandem Diabetes Care 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 Tandem Diabetes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tandem Diabetes Care has no effect on the direction of Edwards Lifesciences i.e., Edwards Lifesciences and Tandem Diabetes go up and down completely randomly.

Pair Corralation between Edwards Lifesciences and Tandem Diabetes

Allowing for the 90-day total investment horizon Edwards Lifesciences is expected to generate 3.09 times less return on investment than Tandem Diabetes. But when comparing it to its historical volatility, Edwards Lifesciences Corp is 1.63 times less risky than Tandem Diabetes. It trades about 0.03 of its potential returns per unit of risk. Tandem Diabetes Care is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,063  in Tandem Diabetes Care on November 28, 2024 and sell it today you would earn a total of  203.00  from holding Tandem Diabetes Care or generate 6.63% return on investment over 90 days.

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

Edwards Lifesciences Corp  vs.  Tandem Diabetes Care

Edwards Lifesciences Corp

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Edwards Lifesciences Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Tandem Diabetes Care

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tandem Diabetes Care are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Tandem Diabetes may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Edwards Lifesciences and Tandem Diabetes

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

The idea behind Edwards Lifesciences Corp and Tandem Diabetes Care 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.