Correlation Between OReilly Automotive and Edwards Lifesciences

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

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

Diversification Opportunities for OReilly Automotive and Edwards Lifesciences

0.85

Correlation Coefficient

OReilly Automotive  Edwards Lifesciences

Very poor diversification

The 3 months correlation between OReilly and Edwards is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding OReilly Automotive and Edwards Lifesciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edwards Lifesciences and OReilly Automotive 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 OReilly Automotive are associated (or correlated) with Edwards Lifesciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edwards Lifesciences has no effect on the direction of OReilly Automotive i.e., OReilly Automotive and Edwards Lifesciences go up and down completely randomly.

Pair Corralation between OReilly Automotive and Edwards Lifesciences

Assuming the 90 days horizon OReilly Automotive is expected to generate 0.54 times more return on investment than Edwards Lifesciences. However, OReilly Automotive is 1.87 times less risky than Edwards Lifesciences. It trades about 0.07 of its potential returns per unit of risk. Edwards Lifesciences is currently generating about 0.04 per unit of risk. If you would invest  89,600  in OReilly Automotive on September 23, 2024 and sell it today you would earn a total of  26,400  from holding OReilly Automotive or generate 29.46% return on investment over 90 days.

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

OReilly Automotive  vs.  Edwards Lifesciences

OReilly Automotive

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in OReilly Automotive are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, OReilly Automotive reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with OReilly Automotive and Edwards Lifesciences

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

The idea behind OReilly Automotive and Edwards Lifesciences 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.