Correlation Between BC Bud and Cumberland Pharmaceuticals

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

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

Diversification Opportunities for BC Bud and Cumberland Pharmaceuticals

0.62

Correlation Coefficient

BC Bud  Cumberland Pharmaceuticals

Poor diversification

The 3 months correlation between BCBCF and Cumberland is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding The BC Bud and Cumberland Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cumberland Pharmaceuticals and BC Bud 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 The BC Bud are associated (or correlated) with Cumberland Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cumberland Pharmaceuticals has no effect on the direction of BC Bud i.e., BC Bud and Cumberland Pharmaceuticals go up and down completely randomly.

Pair Corralation between BC Bud and Cumberland Pharmaceuticals

Assuming the 90 days horizon The BC Bud is expected to generate 3.85 times more return on investment than Cumberland Pharmaceuticals. However, BC Bud is 3.85 times more volatile than Cumberland Pharmaceuticals. It trades about 0.05 of its potential returns per unit of risk. Cumberland Pharmaceuticals is currently generating about 0.02 per unit of risk. If you would invest  5.24  in The BC Bud on September 29, 2024 and sell it today you would earn a total of  1.26  from holding The BC Bud or generate 24.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

The BC Bud  vs.  Cumberland Pharmaceuticals

BC Bud

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The BC Bud are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent fundamental indicators, BC Bud reported solid returns over the last few months and may actually be approaching a breakup point.

Cumberland Pharmaceuticals

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with BC Bud and Cumberland Pharmaceuticals

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

The idea behind The BC Bud and Cumberland Pharmaceuticals 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.