Correlation Between Cumberland Pharmaceuticals and 40414LAM1

Can any of the company-specific risk be diversified away by investing in both Cumberland Pharmaceuticals and 40414LAM1 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 40414LAM1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cumberland Pharmaceuticals and HCP INC 34, you can compare the effects of market volatilities on Cumberland Pharmaceuticals and 40414LAM1 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 40414LAM1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cumberland Pharmaceuticals and 40414LAM1.

Diversification Opportunities for Cumberland Pharmaceuticals and 40414LAM1

-0.33

Correlation Coefficient

Cumberland Pharmaceuticals  40414LAM1

Very good diversification

The 3 months correlation between Cumberland and 40414LAM1 is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Cumberland Pharmaceuticals and HCP INC 34 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HCP INC 34 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 40414LAM1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HCP INC 34 has no effect on the direction of Cumberland Pharmaceuticals i.e., Cumberland Pharmaceuticals and 40414LAM1 go up and down completely randomly.

Pair Corralation between Cumberland Pharmaceuticals and 40414LAM1

Given the investment horizon of 90 days Cumberland Pharmaceuticals is expected to generate 13.09 times more return on investment than 40414LAM1. However, Cumberland Pharmaceuticals is 13.09 times more volatile than HCP INC 34. It trades about 0.1 of its potential returns per unit of risk. HCP INC 34 is currently generating about -0.18 per unit of risk. If you would invest  114.00  in Cumberland Pharmaceuticals on September 5, 2024 and sell it today you would earn a total of  11.00  from holding Cumberland Pharmaceuticals or generate 9.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	86.36%
Values	Daily Returns

Cumberland Pharmaceuticals  vs.  HCP INC 34

Cumberland Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cumberland Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, Cumberland Pharmaceuticals is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

HCP INC 34

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HCP INC 34 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 40414LAM1 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cumberland Pharmaceuticals and 40414LAM1

The main advantage of trading using opposite Cumberland Pharmaceuticals and 40414LAM1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cumberland Pharmaceuticals position performs unexpectedly, 40414LAM1 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 40414LAM1 will offset losses from the drop in 40414LAM1's long position.

The idea behind Cumberland Pharmaceuticals and HCP INC 34 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.