Correlation Between Eton Pharmaceuticals and Inspire Medical

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

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

Diversification Opportunities for Eton Pharmaceuticals and Inspire Medical

-0.48

Correlation Coefficient

Eton Pharmaceuticals  Inspire Medical

Very good diversification

The 3 months correlation between Eton and Inspire is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Eton Pharmaceuticals 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 Eton Pharmaceuticals 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 Eton Pharmaceuticals 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 Eton Pharmaceuticals i.e., Eton Pharmaceuticals and Inspire Medical go up and down completely randomly.

Pair Corralation between Eton Pharmaceuticals and Inspire Medical

Given the investment horizon of 90 days Eton Pharmaceuticals is expected to generate 1.43 times more return on investment than Inspire Medical. However, Eton Pharmaceuticals is 1.43 times more volatile than Inspire Medical Systems. It trades about 0.39 of its potential returns per unit of risk. Inspire Medical Systems is currently generating about 0.01 per unit of risk. If you would invest  835.00  in Eton Pharmaceuticals on September 4, 2024 and sell it today you would earn a total of  411.00  from holding Eton Pharmaceuticals or generate 49.22% return on investment over 90 days.

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

Eton Pharmaceuticals  vs.  Inspire Medical Systems

Eton Pharmaceuticals

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Eton Pharmaceuticals are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Eton Pharmaceuticals displayed solid returns over the last few months and may actually be approaching a breakup point.

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 current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Eton Pharmaceuticals and Inspire Medical

The main advantage of trading using opposite Eton Pharmaceuticals and Inspire Medical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eton Pharmaceuticals 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 Eton Pharmaceuticals 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.