Correlation Between Cumberland Pharmaceuticals and West Island

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

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

Diversification Opportunities for Cumberland Pharmaceuticals and West Island

0.0

Correlation Coefficient

Cumberland Pharmaceuticals  West Island

Pay attention - limited upside

The 3 months correlation between Cumberland and West is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Cumberland Pharmaceuticals and West Island Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Island Brands 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 West Island. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Island Brands has no effect on the direction of Cumberland Pharmaceuticals i.e., Cumberland Pharmaceuticals and West Island go up and down completely randomly.

Pair Corralation between Cumberland Pharmaceuticals and West Island

Given the investment horizon of 90 days Cumberland Pharmaceuticals is expected to generate 71.63 times less return on investment than West Island. But when comparing it to its historical volatility, Cumberland Pharmaceuticals is 15.9 times less risky than West Island. It trades about 0.02 of its potential returns per unit of risk. West Island Brands is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7.80  in West Island Brands on September 29, 2024 and sell it today you would lose (7.45) from holding West Island Brands or give up 95.51% of portfolio value over 90 days.

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

Cumberland Pharmaceuticals  vs.  West Island Brands

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 unsteady forward indicators, Cumberland Pharmaceuticals showed solid returns over the last few months and may actually be approaching a breakup point.

West Island Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days West Island Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, West Island is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Cumberland Pharmaceuticals and West Island

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

The idea behind Cumberland Pharmaceuticals and West Island Brands 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .