Correlation Between LMF Acquisition and Inspire Medical

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

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

Diversification Opportunities for LMF Acquisition and Inspire Medical

0.47

Correlation Coefficient

LMF Acquisition  Inspire Medical

Very weak diversification

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

Pair Corralation between LMF Acquisition and Inspire Medical

Assuming the 90 days horizon LMF Acquisition Opportunities is expected to generate 7.07 times more return on investment than Inspire Medical. However, LMF Acquisition is 7.07 times more volatile than Inspire Medical Systems. It trades about 0.06 of its potential returns per unit of risk. Inspire Medical Systems is currently generating about 0.17 per unit of risk. If you would invest  2.78  in LMF Acquisition Opportunities on October 15, 2024 and sell it today you would lose (0.16) from holding LMF Acquisition Opportunities or give up 5.76% of portfolio value over 90 days.

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

LMF Acquisition Opportunities  vs.  Inspire Medical Systems

LMF Acquisition Oppo

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LMF Acquisition Opportunities are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain fundamental indicators, LMF Acquisition showed solid returns over the last few months and may actually be approaching a breakup point.

Inspire Medical Systems

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Inspire Medical Systems are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 LMF Acquisition and Inspire Medical

The main advantage of trading using opposite LMF Acquisition and Inspire Medical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LMF Acquisition 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 LMF Acquisition Opportunities 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.

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.