Correlation Between Inspire SmallMid and Inspire Faithward

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

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

Diversification Opportunities for Inspire SmallMid and Inspire Faithward

0.95

Correlation Coefficient

Inspire SmallMid  Inspire Faithward

Almost no diversification

The 3 months correlation between Inspire and Inspire is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Inspire SmallMid Cap and Inspire Faithward Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inspire Faithward Mid and Inspire SmallMid 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 SmallMid Cap are associated (or correlated) with Inspire Faithward. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inspire Faithward Mid has no effect on the direction of Inspire SmallMid i.e., Inspire SmallMid and Inspire Faithward go up and down completely randomly.

Pair Corralation between Inspire SmallMid and Inspire Faithward

Given the investment horizon of 90 days Inspire SmallMid Cap is expected to under-perform the Inspire Faithward. But the etf apears to be less risky and, when comparing its historical volatility, Inspire SmallMid Cap is 1.17 times less risky than Inspire Faithward. The etf trades about -0.1 of its potential returns per unit of risk. The Inspire Faithward Mid is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  3,105  in Inspire Faithward Mid on December 20, 2024 and sell it today you would lose (165.00) from holding Inspire Faithward Mid or give up 5.31% of portfolio value over 90 days.

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

Inspire SmallMid Cap  vs.  Inspire Faithward Mid

Inspire SmallMid Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Inspire SmallMid Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Inspire Faithward Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days Inspire Faithward Mid has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Inspire Faithward is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Inspire SmallMid and Inspire Faithward

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

The idea behind Inspire SmallMid Cap and Inspire Faithward Mid 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.