Correlation Between LivaNova PLC and TransMedics

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

By analyzing existing cross correlation between LivaNova PLC and TransMedics Group, you can compare the effects of market volatilities on LivaNova PLC and TransMedics 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 LivaNova PLC with a short position of TransMedics. Check out your portfolio center. Please also check ongoing floating volatility patterns of LivaNova PLC and TransMedics.

Diversification Opportunities for LivaNova PLC and TransMedics

0.67

Correlation Coefficient

LivaNova PLC  TransMedics

Poor diversification

The 3 months correlation between LivaNova and TransMedics is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding LivaNova PLC and TransMedics Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TransMedics Group and LivaNova PLC 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 LivaNova PLC are associated (or correlated) with TransMedics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TransMedics Group has no effect on the direction of LivaNova PLC i.e., LivaNova PLC and TransMedics go up and down completely randomly.

Pair Corralation between LivaNova PLC and TransMedics

Given the investment horizon of 90 days LivaNova PLC is expected to generate 16.26 times less return on investment than TransMedics. But when comparing it to its historical volatility, LivaNova PLC is 2.15 times less risky than TransMedics. It trades about 0.01 of its potential returns per unit of risk. TransMedics Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,513  in TransMedics Group on October 5, 2024 and sell it today you would earn a total of  2,396  from holding TransMedics Group or generate 53.09% return on investment over 90 days.

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

LivaNova PLC  vs.  TransMedics Group

LivaNova PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LivaNova PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

TransMedics Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TransMedics Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with LivaNova PLC and TransMedics

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

The idea behind LivaNova PLC and TransMedics Group 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.