Correlation Between Definitive Healthcare and InMode

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

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

Diversification Opportunities for Definitive Healthcare and InMode

0.52

Correlation Coefficient

Definitive Healthcare  InMode

Very weak diversification

The 3 months correlation between Definitive and InMode is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Definitive Healthcare Corp and InMode in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InMode and Definitive Healthcare 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 Definitive Healthcare Corp are associated (or correlated) with InMode. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InMode has no effect on the direction of Definitive Healthcare i.e., Definitive Healthcare and InMode go up and down completely randomly.

Pair Corralation between Definitive Healthcare and InMode

Allowing for the 90-day total investment horizon Definitive Healthcare Corp is expected to generate 1.25 times more return on investment than InMode. However, Definitive Healthcare is 1.25 times more volatile than InMode. It trades about -0.04 of its potential returns per unit of risk. InMode is currently generating about -0.06 per unit of risk. If you would invest  1,071  in Definitive Healthcare Corp on October 12, 2024 and sell it today you would lose (648.00) from holding Definitive Healthcare Corp or give up 60.5% of portfolio value over 90 days.

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

Definitive Healthcare Corp  vs.  InMode

Definitive Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Definitive Healthcare Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, Definitive Healthcare is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

InMode

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Definitive Healthcare and InMode

The main advantage of trading using opposite Definitive Healthcare and InMode positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Definitive Healthcare position performs unexpectedly, InMode 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 InMode will offset losses from the drop in InMode's long position.

The idea behind Definitive Healthcare Corp and InMode 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.