Correlation Between InMode and Brother Industries

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

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

Diversification Opportunities for InMode and Brother Industries

-0.2

Correlation Coefficient

InMode  Brother Industries

Good diversification

The 3 months correlation between InMode and Brother is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding InMode and Brother Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brother Industries and InMode 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 InMode are associated (or correlated) with Brother Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brother Industries has no effect on the direction of InMode i.e., InMode and Brother Industries go up and down completely randomly.

Pair Corralation between InMode and Brother Industries

Given the investment horizon of 90 days InMode is expected to under-perform the Brother Industries. But the stock apears to be less risky and, when comparing its historical volatility, InMode is 3.37 times less risky than Brother Industries. The stock trades about -0.28 of its potential returns per unit of risk. The Brother Industries is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,742  in Brother Industries on October 10, 2024 and sell it today you would lose (137.00) from holding Brother Industries or give up 7.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.91%
Values	Daily Returns

InMode  vs.  Brother Industries

InMode

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in InMode are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, InMode may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Brother Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brother Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with InMode and Brother Industries

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

The idea behind InMode and Brother Industries 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.