Correlation Between Abbott Laboratories and Edwards Lifesciences

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

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

Diversification Opportunities for Abbott Laboratories and Edwards Lifesciences

0.35

Correlation Coefficient

Abbott Laboratories  Edwards Lifesciences

Weak diversification

The 3 months correlation between Abbott and Edwards is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Abbott Laboratories 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 Abbott Laboratories 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 Abbott Laboratories 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 Abbott Laboratories i.e., Abbott Laboratories and Edwards Lifesciences go up and down completely randomly.

Pair Corralation between Abbott Laboratories and Edwards Lifesciences

Considering the 90-day investment horizon Abbott Laboratories is expected to generate 0.54 times more return on investment than Edwards Lifesciences. However, Abbott Laboratories is 1.84 times less risky than Edwards Lifesciences. It trades about 0.04 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  9,564  in Abbott Laboratories on July 27, 2024 and sell it today you would earn a total of  2,090  from holding Abbott Laboratories or generate 21.85% return on investment over 90 days.

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

Abbott Laboratories  vs.  Edwards Lifesciences Corp

Abbott Laboratories

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Abbott Laboratories are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal fundamental drivers, Abbott Laboratories may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Edwards Lifesciences Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Edwards Lifesciences Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Edwards Lifesciences may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Pair Trading with Abbott Laboratories and Edwards Lifesciences

The main advantage of trading using opposite Abbott Laboratories and Edwards Lifesciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Abbott Laboratories 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 Abbott Laboratories 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.