Correlation Between Basic Materials and Edwards Lifesciences
Can any of the company-specific risk be diversified away by investing in both Basic Materials 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 Basic Materials and Edwards Lifesciences into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and Edwards Lifesciences, you can compare the effects of market volatilities on Basic Materials 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 Basic Materials with a short position of Edwards Lifesciences. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Edwards Lifesciences.
Diversification Opportunities for Basic Materials and Edwards Lifesciences
-0.18 | Correlation Coefficient |
Good diversification
The 3 months correlation between Basic and Edwards is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and Edwards Lifesciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edwards Lifesciences and Basic Materials 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 Basic Materials 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 has no effect on the direction of Basic Materials i.e., Basic Materials and Edwards Lifesciences go up and down completely randomly.
Pair Corralation between Basic Materials and Edwards Lifesciences
Assuming the 90 days trading horizon Basic Materials is expected to generate 20.82 times less return on investment than Edwards Lifesciences. But when comparing it to its historical volatility, Basic Materials is 1.98 times less risky than Edwards Lifesciences. It trades about 0.01 of its potential returns per unit of risk. Edwards Lifesciences is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 9,789 in Edwards Lifesciences on August 28, 2024 and sell it today you would earn a total of 519.00 from holding Edwards Lifesciences or generate 5.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.0% |
| Values | Daily Returns |
Basic Materials vs. Edwards Lifesciences
Performance |
| Timeline |
Basic Materials and Edwards Lifesciences Volatility Contrast
Predicted Return Density |
| Returns |
Basic Materials
Pair trading matchups for Basic Materials
Edwards Lifesciences
Pair trading matchups for Edwards Lifesciences
Pair Trading with Basic Materials and Edwards Lifesciences
The main advantage of trading using opposite Basic Materials and Edwards Lifesciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials 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.| Basic Materials vs. Credit Acceptance | Basic Materials vs. Capital One Financial | Basic Materials vs. Paycom Software | Basic Materials vs. Mitsubishi UFJ Financial |
| Edwards Lifesciences vs. United States Steel | Edwards Lifesciences vs. salesforce inc | Edwards Lifesciences vs. Planet Fitness | Edwards Lifesciences vs. Spotify Technology SA |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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