Correlation Between Hologic and West Pharmaceutical

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

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

Diversification Opportunities for Hologic and West Pharmaceutical

0.87

Correlation Coefficient

Hologic  West Pharmaceutical

Very poor diversification

The 3 months correlation between Hologic and West is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Hologic and West Pharmaceutical Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Pharmaceutical and Hologic 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 Hologic 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 Hologic i.e., Hologic and West Pharmaceutical go up and down completely randomly.

Pair Corralation between Hologic and West Pharmaceutical

Given the investment horizon of 90 days Hologic is expected to generate 0.35 times more return on investment than West Pharmaceutical. However, Hologic is 2.88 times less risky than West Pharmaceutical. It trades about -0.12 of its potential returns per unit of risk. West Pharmaceutical Services is currently generating about -0.08 per unit of risk. If you would invest  7,227  in Hologic on December 28, 2024 and sell it today you would lose (995.00) from holding Hologic or give up 13.77% of portfolio value over 90 days.

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

Hologic  vs.  West Pharmaceutical Services

Hologic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hologic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

West Pharmaceutical

Risk-Adjusted Performance

Very Weak

Over the last 90 days West Pharmaceutical Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Hologic and West Pharmaceutical

The main advantage of trading using opposite Hologic and West Pharmaceutical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hologic 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 Hologic 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.