Correlation Between Insulet and Masimo
Can any of the company-specific risk be diversified away by investing in both Insulet and Masimo 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 Insulet and Masimo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Insulet and Masimo, you can compare the effects of market volatilities on Insulet and Masimo 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 Insulet with a short position of Masimo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Insulet and Masimo.
Diversification Opportunities for Insulet and Masimo
Poor diversification
The 3 months correlation between Insulet and Masimo is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Insulet and Masimo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masimo and Insulet 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 Insulet are associated (or correlated) with Masimo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masimo has no effect on the direction of Insulet i.e., Insulet and Masimo go up and down completely randomly.
Pair Corralation between Insulet and Masimo
Given the investment horizon of 90 days Insulet is expected to generate 1.52 times less return on investment than Masimo. But when comparing it to its historical volatility, Insulet is 1.12 times less risky than Masimo. It trades about 0.26 of its potential returns per unit of risk. Masimo is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest 14,071 in Masimo on August 28, 2024 and sell it today you would earn a total of 3,155 from holding Masimo or generate 22.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Insulet vs. Masimo
Performance |
| Timeline |
| Insulet |
| Masimo |
Insulet and Masimo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Insulet and Masimo
The main advantage of trading using opposite Insulet and Masimo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insulet position performs unexpectedly, Masimo 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 Masimo will offset losses from the drop in Masimo's long position.The idea behind Insulet and Masimo 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.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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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