Correlation Between Medtronic PLC and Inspire Medical

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

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

Diversification Opportunities for Medtronic PLC and Inspire Medical

-0.58

Correlation Coefficient

Medtronic PLC  Inspire Medical

Excellent diversification

The 3 months correlation between Medtronic and Inspire is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Medtronic PLC 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 Medtronic PLC 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 Medtronic PLC 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 Medtronic PLC i.e., Medtronic PLC and Inspire Medical go up and down completely randomly.

Pair Corralation between Medtronic PLC and Inspire Medical

Considering the 90-day investment horizon Medtronic PLC is expected to under-perform the Inspire Medical. But the stock apears to be less risky and, when comparing its historical volatility, Medtronic PLC is 2.52 times less risky than Inspire Medical. The stock trades about -0.01 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  18,474  in Inspire Medical Systems on February 26, 2024 and sell it today you would lose (2,992) from holding Inspire Medical Systems or give up 16.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Medtronic PLC  vs.  Inspire Medical Systems

Medtronic PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medtronic PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Medtronic PLC is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Inspire Medical Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inspire Medical Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Inspire Medical is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Medtronic PLC and Inspire Medical

The main advantage of trading using opposite Medtronic PLC and Inspire Medical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Medtronic PLC 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 Medtronic PLC 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.