Correlation Between Cumberland Pharmaceuticals and Phibro Animal

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

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

Diversification Opportunities for Cumberland Pharmaceuticals and Phibro Animal

0.59

Correlation Coefficient

Cumberland Pharmaceuticals  Phibro Animal

Very weak diversification

The 3 months correlation between Cumberland and Phibro is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Cumberland Pharmaceuticals and Phibro Animal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phibro Animal Health 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 Phibro Animal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phibro Animal Health has no effect on the direction of Cumberland Pharmaceuticals i.e., Cumberland Pharmaceuticals and Phibro Animal go up and down completely randomly.

Pair Corralation between Cumberland Pharmaceuticals and Phibro Animal

Given the investment horizon of 90 days Cumberland Pharmaceuticals is expected to generate 4.1 times more return on investment than Phibro Animal. However, Cumberland Pharmaceuticals is 4.1 times more volatile than Phibro Animal Health. It trades about 0.13 of its potential returns per unit of risk. Phibro Animal Health is currently generating about 0.03 per unit of risk. 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

Cumberland Pharmaceuticals  vs.  Phibro Animal Health

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.

Phibro Animal Health

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Phibro Animal Health are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Phibro Animal is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Cumberland Pharmaceuticals and Phibro Animal

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

The idea behind Cumberland Pharmaceuticals and Phibro Animal Health 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 Stocks Directory module to find actively traded stocks across global markets.