Correlation Between Natera and IRhythm Technologies

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

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

Diversification Opportunities for Natera and IRhythm Technologies

0.5

Correlation Coefficient

Natera  IRhythm Technologies

Very weak diversification

The 3 months correlation between Natera and IRhythm is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Natera Inc and iRhythm Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iRhythm Technologies and Natera 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 Natera Inc are associated (or correlated) with IRhythm Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iRhythm Technologies has no effect on the direction of Natera i.e., Natera and IRhythm Technologies go up and down completely randomly.

Pair Corralation between Natera and IRhythm Technologies

Given the investment horizon of 90 days Natera Inc is expected to generate 0.75 times more return on investment than IRhythm Technologies. However, Natera Inc is 1.33 times less risky than IRhythm Technologies. It trades about 0.19 of its potential returns per unit of risk. iRhythm Technologies is currently generating about 0.09 per unit of risk. If you would invest  11,766  in Natera Inc on September 8, 2024 and sell it today you would earn a total of  5,399  from holding Natera Inc or generate 45.89% return on investment over 90 days.

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

Natera Inc  vs.  iRhythm Technologies

Natera Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Natera Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Natera sustained solid returns over the last few months and may actually be approaching a breakup point.

iRhythm Technologies

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iRhythm Technologies are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, IRhythm Technologies exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Natera and IRhythm Technologies

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

The idea behind Natera Inc and iRhythm Technologies 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.