Correlation Between New Momentum and Inspirato

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

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

Diversification Opportunities for New Momentum and Inspirato

0.51

Correlation Coefficient

New Momentum  Inspirato

Very weak diversification

The 3 months correlation between New and Inspirato is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding New Momentum and Inspirato in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inspirato and New Momentum 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 New Momentum are associated (or correlated) with Inspirato. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inspirato has no effect on the direction of New Momentum i.e., New Momentum and Inspirato go up and down completely randomly.

Pair Corralation between New Momentum and Inspirato

Given the investment horizon of 90 days New Momentum is expected to generate 3.23 times more return on investment than Inspirato. However, New Momentum is 3.23 times more volatile than Inspirato. It trades about 0.04 of its potential returns per unit of risk. Inspirato is currently generating about -0.04 per unit of risk. If you would invest  0.06  in New Momentum on September 26, 2024 and sell it today you would lose (0.01) from holding New Momentum or give up 16.67% of portfolio value over 90 days.

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

New Momentum  vs.  Inspirato

New Momentum

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in New Momentum are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, New Momentum showed solid returns over the last few months and may actually be approaching a breakup point.

Inspirato

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inspirato has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with New Momentum and Inspirato

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

The idea behind New Momentum and Inspirato 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.