Correlation Between Volkswagen and Edwards Lifesciences

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

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

Diversification Opportunities for Volkswagen and Edwards Lifesciences

-0.51

Correlation Coefficient

Volkswagen  Edwards Lifesciences

Excellent diversification

The 3 months correlation between Volkswagen and Edwards is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG VZO and Edwards Lifesciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edwards Lifesciences and Volkswagen 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 Volkswagen AG VZO 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 Volkswagen i.e., Volkswagen and Edwards Lifesciences go up and down completely randomly.

Pair Corralation between Volkswagen and Edwards Lifesciences

Assuming the 90 days trading horizon Volkswagen AG VZO is expected to under-perform the Edwards Lifesciences. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG VZO is 1.29 times less risky than Edwards Lifesciences. The stock trades about -0.08 of its potential returns per unit of risk. The Edwards Lifesciences is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  5,956  in Edwards Lifesciences on October 5, 2024 and sell it today you would earn a total of  1,166  from holding Edwards Lifesciences or generate 19.58% return on investment over 90 days.

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

Volkswagen AG VZO  vs.  Edwards Lifesciences

Volkswagen AG VZO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG VZO has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Edwards Lifesciences

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Edwards Lifesciences has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, Edwards Lifesciences reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volkswagen and Edwards Lifesciences

The main advantage of trading using opposite Volkswagen and Edwards Lifesciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volkswagen 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 Volkswagen AG VZO 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..