Correlation Between Alcon AG and West Pharmaceutical

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

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

Diversification Opportunities for Alcon AG and West Pharmaceutical

-0.56

Correlation Coefficient

Alcon AG  West Pharmaceutical

Excellent diversification

The 3 months correlation between Alcon and West is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Alcon AG and West Pharmaceutical Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Pharmaceutical 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 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 Alcon AG i.e., Alcon AG and West Pharmaceutical go up and down completely randomly.

Pair Corralation between Alcon AG and West Pharmaceutical

Considering the 90-day investment horizon Alcon AG is expected to generate 0.63 times more return on investment than West Pharmaceutical. However, Alcon AG is 1.59 times less risky than West Pharmaceutical. It trades about 0.03 of its potential returns per unit of risk. West Pharmaceutical Services is currently generating about 0.0 per unit of risk. If you would invest  7,866  in Alcon AG on August 31, 2024 and sell it today you would earn a total of  1,019  from holding Alcon AG or generate 12.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Alcon AG  vs.  West Pharmaceutical Services

Alcon AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alcon AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

West Pharmaceutical

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in West Pharmaceutical Services are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, West Pharmaceutical may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Alcon AG and West Pharmaceutical

The main advantage of trading using opposite Alcon AG and West Pharmaceutical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcon AG 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 Alcon AG 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.