Correlation Between Cigna Corp and West Pharmaceutical

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

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

Diversification Opportunities for Cigna Corp and West Pharmaceutical

-0.75

Correlation Coefficient

Cigna Corp  West Pharmaceutical

Pay attention - limited upside

The 3 months correlation between Cigna and West is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Cigna Corp and West Pharmaceutical Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Pharmaceutical and Cigna Corp 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 Cigna Corp 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 Cigna Corp i.e., Cigna Corp and West Pharmaceutical go up and down completely randomly.

Pair Corralation between Cigna Corp and West Pharmaceutical

Allowing for the 90-day total investment horizon Cigna Corp is expected to generate 0.33 times more return on investment than West Pharmaceutical. However, Cigna Corp is 3.02 times less risky than West Pharmaceutical. It trades about 0.14 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  28,020  in Cigna Corp on December 26, 2024 and sell it today you would earn a total of  4,103  from holding Cigna Corp or generate 14.64% return on investment over 90 days.

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

Cigna Corp  vs.  West Pharmaceutical Services

Cigna Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cigna Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal forward indicators, Cigna Corp demonstrated solid returns over the last few months and may actually be approaching a breakup point.

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 Cigna Corp and West Pharmaceutical

The main advantage of trading using opposite Cigna Corp and West Pharmaceutical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cigna Corp 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 Cigna Corp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.