Correlation Between Inspire Medical and Edwards Lifesciences

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

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

Diversification Opportunities for Inspire Medical and Edwards Lifesciences

0.22

Correlation Coefficient

Inspire Medical  Edwards Lifesciences

Modest diversification

The 3 months correlation between Inspire and Edwards is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Inspire Medical Systems 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 Inspire Medical 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 Inspire Medical Systems 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 Inspire Medical i.e., Inspire Medical and Edwards Lifesciences go up and down completely randomly.

Pair Corralation between Inspire Medical and Edwards Lifesciences

Given the investment horizon of 90 days Inspire Medical Systems is expected to generate 2.61 times more return on investment than Edwards Lifesciences. However, Inspire Medical is 2.61 times more volatile than Edwards Lifesciences Corp. It trades about 0.16 of its potential returns per unit of risk. Edwards Lifesciences Corp is currently generating about 0.1 per unit of risk. If you would invest  13,361  in Inspire Medical Systems on July 27, 2024 and sell it today you would earn a total of  6,169  from holding Inspire Medical Systems or generate 46.17% return on investment over 90 days.

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

Inspire Medical Systems  vs.  Edwards Lifesciences Corp

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.

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 Inspire Medical and Edwards Lifesciences

The main advantage of trading using opposite Inspire Medical and Edwards Lifesciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inspire Medical 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 Inspire Medical Systems 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 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.