Correlation Between Medtronic PLC and Edwards Lifesciences
Can any of the company-specific risk be diversified away by investing in both Medtronic PLC 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 Medtronic PLC and Edwards Lifesciences into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Medtronic PLC and Edwards Lifesciences Corp, you can compare the effects of market volatilities on Medtronic PLC 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 Medtronic PLC with a short position of Edwards Lifesciences. Check out your portfolio center. Please also check ongoing floating volatility patterns of Medtronic PLC and Edwards Lifesciences.
Diversification Opportunities for Medtronic PLC and Edwards Lifesciences
-0.24 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Medtronic and Edwards is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Medtronic PLC 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 Medtronic 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 Medtronic PLC 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 Medtronic PLC i.e., Medtronic PLC and Edwards Lifesciences go up and down completely randomly.
Pair Corralation between Medtronic PLC and Edwards Lifesciences
Considering the 90-day investment horizon Medtronic PLC is expected to generate 2.24 times less return on investment than Edwards Lifesciences. But when comparing it to its historical volatility, Medtronic PLC is 1.61 times less risky than Edwards Lifesciences. It trades about 0.12 of its potential returns per unit of risk. Edwards Lifesciences Corp is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 6,171 in Edwards Lifesciences Corp on January 25, 2024 and sell it today you would earn a total of 2,690 from holding Edwards Lifesciences Corp or generate 43.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Medtronic PLC vs. Edwards Lifesciences Corp
Performance |
| Timeline |
| Medtronic PLC |
| Edwards Lifesciences Corp |
Medtronic PLC and Edwards Lifesciences Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Medtronic PLC and Edwards Lifesciences
The main advantage of trading using opposite Medtronic PLC and Edwards Lifesciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Medtronic PLC 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 Medtronic PLC 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.Check out your portfolio center.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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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