Correlation Between Inspire Medical and Penumbra

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

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

Diversification Opportunities for Inspire Medical and Penumbra

-0.59

Correlation Coefficient

Inspire Medical  Penumbra

Excellent diversification

The 3 months correlation between Inspire and Penumbra is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Inspire Medical Systems and Penumbra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penumbra and Inspire Medical 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 Inspire Medical Systems are associated (or correlated) with Penumbra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penumbra has no effect on the direction of Inspire Medical i.e., Inspire Medical and Penumbra go up and down completely randomly.

Pair Corralation between Inspire Medical and Penumbra

Given the investment horizon of 90 days Inspire Medical is expected to generate 1.65 times less return on investment than Penumbra. In addition to that, Inspire Medical is 1.36 times more volatile than Penumbra. It trades about 0.06 of its total potential returns per unit of risk. Penumbra is currently generating about 0.13 per unit of volatility. If you would invest  20,497  in Penumbra on September 2, 2024 and sell it today you would earn a total of  3,915  from holding Penumbra or generate 19.1% return on investment over 90 days.

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

Inspire Medical Systems  vs.  Penumbra

Inspire Medical Systems

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Inspire Medical Systems are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Inspire Medical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Penumbra

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Penumbra are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile technical and fundamental indicators, Penumbra displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Inspire Medical and Penumbra

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

The idea behind Inspire Medical Systems and Penumbra 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.