Correlation Between OBSERVE MEDICAL and Inspire Medical

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

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

Diversification Opportunities for OBSERVE MEDICAL and Inspire Medical

0.54

Correlation Coefficient

OBSERVE MEDICAL  Inspire Medical

Very weak diversification

The 3 months correlation between OBSERVE and Inspire is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding OBSERVE MEDICAL ASA and Inspire Medical Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inspire Medical Systems and OBSERVE 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 OBSERVE MEDICAL ASA are associated (or correlated) with Inspire Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inspire Medical Systems has no effect on the direction of OBSERVE MEDICAL i.e., OBSERVE MEDICAL and Inspire Medical go up and down completely randomly.

Pair Corralation between OBSERVE MEDICAL and Inspire Medical

Assuming the 90 days trading horizon OBSERVE MEDICAL ASA is expected to generate 4.14 times more return on investment than Inspire Medical. However, OBSERVE MEDICAL is 4.14 times more volatile than Inspire Medical Systems. It trades about 0.01 of its potential returns per unit of risk. Inspire Medical Systems is currently generating about -0.11 per unit of risk. If you would invest  44.00  in OBSERVE MEDICAL ASA on December 21, 2024 and sell it today you would lose (14.00) from holding OBSERVE MEDICAL ASA or give up 31.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.92%
Values	Daily Returns

OBSERVE MEDICAL ASA  vs.  Inspire Medical Systems

OBSERVE MEDICAL ASA

Risk-Adjusted Performance

Very Weak

Over the last 90 days OBSERVE MEDICAL ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, OBSERVE MEDICAL is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Inspire Medical Systems

Risk-Adjusted Performance

Very Weak

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

Pair Trading with OBSERVE MEDICAL and Inspire Medical

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

The idea behind OBSERVE MEDICAL ASA and Inspire Medical Systems 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.