Correlation Between Carl Zeiss and West Pharmaceutical

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

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

Diversification Opportunities for Carl Zeiss and West Pharmaceutical

-0.74

Correlation Coefficient

Carl Zeiss  West Pharmaceutical

Pay attention - limited upside

The 3 months correlation between Carl and West is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Carl Zeiss Meditec and West Pharmaceutical Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Pharmaceutical and Carl Zeiss 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 Carl Zeiss Meditec 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 Carl Zeiss i.e., Carl Zeiss and West Pharmaceutical go up and down completely randomly.

Pair Corralation between Carl Zeiss and West Pharmaceutical

Assuming the 90 days horizon Carl Zeiss Meditec is expected to under-perform the West Pharmaceutical. In addition to that, Carl Zeiss is 1.52 times more volatile than West Pharmaceutical Services. It trades about -0.08 of its total potential returns per unit of risk. West Pharmaceutical Services is currently generating about 0.05 per unit of volatility. If you would invest  31,080  in West Pharmaceutical Services on September 27, 2024 and sell it today you would earn a total of  2,247  from holding West Pharmaceutical Services or generate 7.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Carl Zeiss Meditec  vs.  West Pharmaceutical Services

Carl Zeiss Meditec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carl Zeiss Meditec has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

West Pharmaceutical

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in West Pharmaceutical Services are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, West Pharmaceutical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Carl Zeiss and West Pharmaceutical

The main advantage of trading using opposite Carl Zeiss and West Pharmaceutical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carl Zeiss 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 Carl Zeiss Meditec 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.