Correlation Between Cumberland Pharmaceuticals and Biome Grow

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

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

Diversification Opportunities for Cumberland Pharmaceuticals and Biome Grow

-0.05

Correlation Coefficient

Cumberland Pharmaceuticals  Biome Grow

Good diversification

The 3 months correlation between Cumberland and Biome is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Cumberland Pharmaceuticals and Biome Grow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biome Grow and Cumberland Pharmaceuticals 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 Cumberland Pharmaceuticals are associated (or correlated) with Biome Grow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biome Grow has no effect on the direction of Cumberland Pharmaceuticals i.e., Cumberland Pharmaceuticals and Biome Grow go up and down completely randomly.

Pair Corralation between Cumberland Pharmaceuticals and Biome Grow

Given the investment horizon of 90 days Cumberland Pharmaceuticals is expected to generate 1.19 times less return on investment than Biome Grow. But when comparing it to its historical volatility, Cumberland Pharmaceuticals is 1.27 times less risky than Biome Grow. It trades about 0.21 of its potential returns per unit of risk. Biome Grow is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  0.38  in Biome Grow on October 4, 2024 and sell it today you would earn a total of  0.26  from holding Biome Grow or generate 68.42% return on investment over 90 days.

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

Cumberland Pharmaceuticals  vs.  Biome Grow

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.

Biome Grow

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Cumberland Pharmaceuticals and Biome Grow

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

The idea behind Cumberland Pharmaceuticals and Biome Grow 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.