Correlation Between STMICROELECTRONICS and Inspire Medical

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Can any of the company-specific risk be diversified away by investing in both STMICROELECTRONICS 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 STMICROELECTRONICS and Inspire Medical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between STMICROELECTRONICS and Inspire Medical Systems, you can compare the effects of market volatilities on STMICROELECTRONICS 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 STMICROELECTRONICS with a short position of Inspire Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMICROELECTRONICS and Inspire Medical.

Diversification Opportunities for STMICROELECTRONICS and Inspire Medical

0.47
  Correlation Coefficient

Very weak diversification

The 3 months correlation between STMICROELECTRONICS and Inspire is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding STMICROELECTRONICS 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 STMICROELECTRONICS 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 STMICROELECTRONICS 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 STMICROELECTRONICS i.e., STMICROELECTRONICS and Inspire Medical go up and down completely randomly.

Pair Corralation between STMICROELECTRONICS and Inspire Medical

Assuming the 90 days trading horizon STMICROELECTRONICS is expected to under-perform the Inspire Medical. But the stock apears to be less risky and, when comparing its historical volatility, STMICROELECTRONICS is 1.64 times less risky than Inspire Medical. The stock trades about -0.03 of its potential returns per unit of risk. The Inspire Medical Systems is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  23,050  in Inspire Medical Systems on October 11, 2024 and sell it today you would lose (3,325) from holding Inspire Medical Systems or give up 14.43% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

STMICROELECTRONICS  vs.  Inspire Medical Systems

 Performance 
       Timeline  
STMICROELECTRONICS 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days STMICROELECTRONICS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, STMICROELECTRONICS is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
Inspire Medical Systems 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Inspire Medical Systems are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Inspire Medical may actually be approaching a critical reversion point that can send shares even higher in February 2025.

STMICROELECTRONICS and Inspire Medical Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with STMICROELECTRONICS and Inspire Medical

The main advantage of trading using opposite STMICROELECTRONICS and Inspire Medical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMICROELECTRONICS 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 STMICROELECTRONICS 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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