Correlation Between Edwards Lifesciences and Inspire Medical

Can any of the company-specific risk be diversified away by investing in both Edwards Lifesciences and Inspire Medical 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 Inspire Medical 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 Inspire Medical Systems, you can compare the effects of market volatilities on Edwards Lifesciences and Inspire Medical 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 Inspire Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Edwards Lifesciences and Inspire Medical.

Diversification Opportunities for Edwards Lifesciences and Inspire Medical

0.22

Correlation Coefficient

Edwards Lifesciences  Inspire Medical

Modest diversification

The 3 months correlation between Edwards and Inspire is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Edwards Lifesciences Corp and Inspire Medical Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inspire Medical Systems 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 Inspire Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inspire Medical Systems has no effect on the direction of Edwards Lifesciences i.e., Edwards Lifesciences and Inspire Medical go up and down completely randomly.

Pair Corralation between Edwards Lifesciences and Inspire Medical

Allowing for the 90-day total investment horizon Edwards Lifesciences is expected to generate 1.91 times less return on investment than Inspire Medical. But when comparing it to its historical volatility, Edwards Lifesciences Corp is 1.68 times less risky than Inspire Medical. It trades about 0.01 of its potential returns per unit of risk. Inspire Medical Systems is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  20,712  in Inspire Medical Systems on July 27, 2024 and sell it today you would lose (1,182) from holding Inspire Medical Systems or give up 5.71% of portfolio value over 90 days.

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

Edwards Lifesciences Corp  vs.  Inspire Medical Systems

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.

Inspire Medical Systems

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inspire Medical Systems are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Inspire Medical reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Edwards Lifesciences and Inspire Medical

The main advantage of trading using opposite Edwards Lifesciences and Inspire Medical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Edwards Lifesciences position performs unexpectedly, Inspire Medical 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 Inspire Medical will offset losses from the drop in Inspire Medical's long position.

The idea behind Edwards Lifesciences Corp and Inspire Medical Systems 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.