Correlation Between Edwards Lifesciences and Echo Therapeutics

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Can any of the company-specific risk be diversified away by investing in both Edwards Lifesciences and Echo Therapeutics 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 Echo Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Edwards Lifesciences Corp and Echo Therapeutics, you can compare the effects of market volatilities on Edwards Lifesciences and Echo Therapeutics 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 Echo Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Edwards Lifesciences and Echo Therapeutics.

Diversification Opportunities for Edwards Lifesciences and Echo Therapeutics

0.0
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Edwards and Echo is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Edwards Lifesciences Corp and Echo Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Echo Therapeutics 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 Corp are associated (or correlated) with Echo Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Echo Therapeutics has no effect on the direction of Edwards Lifesciences i.e., Edwards Lifesciences and Echo Therapeutics go up and down completely randomly.

Pair Corralation between Edwards Lifesciences and Echo Therapeutics

If you would invest  7,457  in Edwards Lifesciences Corp on December 29, 2023 and sell it today you would earn a total of  2,058  from holding Edwards Lifesciences Corp or generate 27.6% return on investment over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy0.0%
ValuesDaily Returns

Edwards Lifesciences Corp  vs.  Echo Therapeutics

 Performance 
       Timeline  
Edwards Lifesciences Corp 

Risk-Adjusted Performance

14 of 100

 
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Good
Compared to the overall equity markets, risk-adjusted returns on investments in Edwards Lifesciences Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Edwards Lifesciences showed solid returns over the last few months and may actually be approaching a breakup point.
Echo Therapeutics 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Echo Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Echo Therapeutics is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Edwards Lifesciences and Echo Therapeutics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Edwards Lifesciences and Echo Therapeutics

The main advantage of trading using opposite Edwards Lifesciences and Echo Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Edwards Lifesciences position performs unexpectedly, Echo Therapeutics 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 Echo Therapeutics will offset losses from the drop in Echo Therapeutics' long position.
The idea behind Edwards Lifesciences Corp and Echo Therapeutics 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.

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