Correlation Between Edwards Lifesciences and Stryker

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

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

Diversification Opportunities for Edwards Lifesciences and Stryker

0.7

Correlation Coefficient

Edwards Lifesciences  Stryker

Poor diversification

The 3 months correlation between Edwards and Stryker is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Edwards Lifesciences and Stryker in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stryker 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 Stryker. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stryker has no effect on the direction of Edwards Lifesciences i.e., Edwards Lifesciences and Stryker go up and down completely randomly.

Pair Corralation between Edwards Lifesciences and Stryker

Assuming the 90 days horizon Edwards Lifesciences is expected to generate 1.16 times less return on investment than Stryker. In addition to that, Edwards Lifesciences is 2.14 times more volatile than Stryker. It trades about 0.04 of its total potential returns per unit of risk. Stryker is currently generating about 0.09 per unit of volatility. If you would invest  26,344  in Stryker on September 23, 2024 and sell it today you would earn a total of  8,506  from holding Stryker or generate 32.29% return on investment over 90 days.

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

Edwards Lifesciences  vs.  Stryker

Edwards Lifesciences

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Edwards Lifesciences are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Edwards Lifesciences reported solid returns over the last few months and may actually be approaching a breakup point.

Stryker

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Stryker are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Stryker is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Edwards Lifesciences and Stryker

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

The idea behind Edwards Lifesciences and Stryker 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.