Correlation Between Treace Medical and Edwards Lifesciences

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

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

Diversification Opportunities for Treace Medical and Edwards Lifesciences

-0.19

Correlation Coefficient

Treace Medical  Edwards Lifesciences

Good diversification

The 3 months correlation between Treace and Edwards is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Treace Medical Concepts and Edwards Lifesciences Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edwards Lifesciences Corp and Treace Medical 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 Treace Medical Concepts 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 Corp has no effect on the direction of Treace Medical i.e., Treace Medical and Edwards Lifesciences go up and down completely randomly.

Pair Corralation between Treace Medical and Edwards Lifesciences

Given the investment horizon of 90 days Treace Medical Concepts is expected to generate 2.12 times more return on investment than Edwards Lifesciences. However, Treace Medical is 2.12 times more volatile than Edwards Lifesciences Corp. It trades about 0.07 of its potential returns per unit of risk. Edwards Lifesciences Corp is currently generating about -0.01 per unit of risk. If you would invest  856.00  in Treace Medical Concepts on November 27, 2024 and sell it today you would earn a total of  102.00  from holding Treace Medical Concepts or generate 11.92% return on investment over 90 days.

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

Treace Medical Concepts  vs.  Edwards Lifesciences Corp

Treace Medical Concepts

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Treace Medical Concepts are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain fundamental indicators, Treace Medical demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Edwards Lifesciences Corp

Risk-Adjusted Performance

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.

Pair Trading with Treace Medical and Edwards Lifesciences

The main advantage of trading using opposite Treace Medical and Edwards Lifesciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Treace Medical 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 Treace Medical Concepts and Edwards Lifesciences Corp 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.