Correlation Between Align Technology and Edwards Lifesciences

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

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

Diversification Opportunities for Align Technology and Edwards Lifesciences

0.14

Correlation Coefficient

Align Technology  Edwards Lifesciences

Average diversification

The 3 months correlation between Align and Edwards is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Align Technology and Edwards Lifesciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edwards Lifesciences and Align Technology 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 Align Technology 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 Align Technology i.e., Align Technology and Edwards Lifesciences go up and down completely randomly.

Pair Corralation between Align Technology and Edwards Lifesciences

Assuming the 90 days horizon Align Technology is expected to generate 4.63 times less return on investment than Edwards Lifesciences. In addition to that, Align Technology is 1.06 times more volatile than Edwards Lifesciences. It trades about 0.03 of its total potential returns per unit of risk. Edwards Lifesciences is currently generating about 0.13 per unit of volatility. If you would invest  6,150  in Edwards Lifesciences on September 14, 2024 and sell it today you would earn a total of  908.00  from holding Edwards Lifesciences or generate 14.76% return on investment over 90 days.

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

Align Technology  vs.  Edwards Lifesciences

Align Technology

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Align Technology are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Align Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Edwards Lifesciences

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Edwards Lifesciences are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Edwards Lifesciences reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Align Technology and Edwards Lifesciences

The main advantage of trading using opposite Align Technology and Edwards Lifesciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Align Technology 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 Align Technology and Edwards Lifesciences 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.