Correlation Between Agilent Technologies and West Pharmaceutical

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

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

Diversification Opportunities for Agilent Technologies and West Pharmaceutical

0.75

Correlation Coefficient

Agilent Technologies  West Pharmaceutical

Poor diversification

The 3 months correlation between Agilent and West is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Agilent Technologies and West Pharmaceutical Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Pharmaceutical and Agilent Technologies 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 Agilent Technologies are associated (or correlated) with West Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Pharmaceutical has no effect on the direction of Agilent Technologies i.e., Agilent Technologies and West Pharmaceutical go up and down completely randomly.

Pair Corralation between Agilent Technologies and West Pharmaceutical

Taking into account the 90-day investment horizon Agilent Technologies is expected to generate 0.3 times more return on investment than West Pharmaceutical. However, Agilent Technologies is 3.28 times less risky than West Pharmaceutical. It trades about -0.11 of its potential returns per unit of risk. West Pharmaceutical Services is currently generating about -0.09 per unit of risk. If you would invest  13,529  in Agilent Technologies on December 27, 2024 and sell it today you would lose (1,539) from holding Agilent Technologies or give up 11.38% of portfolio value over 90 days.

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

Agilent Technologies  vs.  West Pharmaceutical Services

Agilent Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Agilent Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

West Pharmaceutical

Risk-Adjusted Performance

Very Weak

Over the last 90 days West Pharmaceutical Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Agilent Technologies and West Pharmaceutical

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

The idea behind Agilent Technologies and West Pharmaceutical Services 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.