Correlation Between Alcon AG and Inspire Medical

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

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

Diversification Opportunities for Alcon AG and Inspire Medical

0.67

Correlation Coefficient

Alcon AG  Inspire Medical

Poor diversification

The 3 months correlation between Alcon and Inspire is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Alcon AG 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 Alcon AG 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 Alcon AG 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 Alcon AG i.e., Alcon AG and Inspire Medical go up and down completely randomly.

Pair Corralation between Alcon AG and Inspire Medical

Considering the 90-day investment horizon Alcon AG is expected to generate 33.55 times less return on investment than Inspire Medical. But when comparing it to its historical volatility, Alcon AG is 3.98 times less risky than Inspire Medical. It trades about 0.02 of its potential returns per unit of risk. Inspire Medical Systems is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  12,579  in Inspire Medical Systems on July 26, 2024 and sell it today you would earn a total of  6,951  from holding Inspire Medical Systems or generate 55.26% return on investment over 90 days.

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

Alcon AG  vs.  Inspire Medical Systems

Alcon AG

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alcon AG are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Alcon AG is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Inspire Medical Systems

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inspire Medical Systems are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Inspire Medical reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alcon AG and Inspire Medical

The main advantage of trading using opposite Alcon AG and Inspire Medical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcon AG 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 Alcon AG 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.