Correlation Between Inspire Medical and Bioventus

Can any of the company-specific risk be diversified away by investing in both Inspire Medical and Bioventus 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 Bioventus 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 Bioventus, you can compare the effects of market volatilities on Inspire Medical and Bioventus 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 Bioventus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inspire Medical and Bioventus.

Diversification Opportunities for Inspire Medical and Bioventus

0.02

Correlation Coefficient

Inspire Medical  Bioventus

Significant diversification

The 3 months correlation between Inspire and Bioventus is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Inspire Medical Systems and Bioventus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bioventus 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 Bioventus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bioventus has no effect on the direction of Inspire Medical i.e., Inspire Medical and Bioventus go up and down completely randomly.

Pair Corralation between Inspire Medical and Bioventus

Given the investment horizon of 90 days Inspire Medical Systems is expected to under-perform the Bioventus. But the stock apears to be less risky and, when comparing its historical volatility, Inspire Medical Systems is 1.27 times less risky than Bioventus. The stock trades about -0.01 of its potential returns per unit of risk. The Bioventus is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  966.00  in Bioventus on September 4, 2024 and sell it today you would earn a total of  262.00  from holding Bioventus or generate 27.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Inspire Medical Systems  vs.  Bioventus

Inspire Medical Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inspire Medical Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Inspire Medical is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Bioventus

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bioventus are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Bioventus unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Inspire Medical and Bioventus

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

The idea behind Inspire Medical Systems and Bioventus 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.