Correlation Between Cardinal Health and Cumberland Pharmaceuticals

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

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

Diversification Opportunities for Cardinal Health and Cumberland Pharmaceuticals

0.49

Correlation Coefficient

Cardinal Health  Cumberland Pharmaceuticals

Very weak diversification

The 3 months correlation between Cardinal and Cumberland is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Cardinal Health and Cumberland Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cumberland Pharmaceuticals and Cardinal Health 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 Cardinal Health 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 Cardinal Health i.e., Cardinal Health and Cumberland Pharmaceuticals go up and down completely randomly.

Pair Corralation between Cardinal Health and Cumberland Pharmaceuticals

Considering the 90-day investment horizon Cardinal Health is expected to generate 6.67 times less return on investment than Cumberland Pharmaceuticals. But when comparing it to its historical volatility, Cardinal Health is 11.92 times less risky than Cumberland Pharmaceuticals. It trades about 0.22 of its potential returns per unit of risk. Cumberland Pharmaceuticals is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  242.00  in Cumberland Pharmaceuticals on December 30, 2024 and sell it today you would earn a total of  199.00  from holding Cumberland Pharmaceuticals or generate 82.23% return on investment over 90 days.

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

Cardinal Health  vs.  Cumberland Pharmaceuticals

Cardinal Health

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cardinal Health are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Cardinal Health demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Cumberland Pharmaceuticals

Risk-Adjusted Performance

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 Cardinal Health and Cumberland Pharmaceuticals

The main advantage of trading using opposite Cardinal Health and Cumberland Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cardinal Health 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 Cardinal Health 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.