Correlation Between Innoviva and Garrett Motion

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

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

Diversification Opportunities for Innoviva and Garrett Motion

-0.75

Correlation Coefficient

Innoviva  Garrett Motion

Pay attention - limited upside

The 3 months correlation between Innoviva and Garrett is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Innoviva and Garrett Motion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Garrett Motion and Innoviva 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 Innoviva are associated (or correlated) with Garrett Motion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Garrett Motion has no effect on the direction of Innoviva i.e., Innoviva and Garrett Motion go up and down completely randomly.

Pair Corralation between Innoviva and Garrett Motion

Given the investment horizon of 90 days Innoviva is expected to generate 0.62 times more return on investment than Garrett Motion. However, Innoviva is 1.6 times less risky than Garrett Motion. It trades about 0.08 of its potential returns per unit of risk. Garrett Motion is currently generating about 0.04 per unit of risk. If you would invest  1,273  in Innoviva on October 22, 2024 and sell it today you would earn a total of  585.00  from holding Innoviva or generate 45.95% return on investment over 90 days.

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

Innoviva  vs.  Garrett Motion

Innoviva

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Innoviva has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Garrett Motion

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Garrett Motion are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Garrett Motion showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Innoviva and Garrett Motion

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

The idea behind Innoviva and Garrett Motion 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.