Correlation Between Intuitive Surgical and West Pharmaceutical

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

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

Diversification Opportunities for Intuitive Surgical and West Pharmaceutical

0.27

Correlation Coefficient

Intuitive Surgical  West Pharmaceutical

Modest diversification

The 3 months correlation between Intuitive and West is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Intuitive Surgical and West Pharmaceutical Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Pharmaceutical and Intuitive Surgical 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 Intuitive Surgical 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 Intuitive Surgical i.e., Intuitive Surgical and West Pharmaceutical go up and down completely randomly.

Pair Corralation between Intuitive Surgical and West Pharmaceutical

Given the investment horizon of 90 days Intuitive Surgical is expected to generate 0.42 times more return on investment than West Pharmaceutical. However, Intuitive Surgical is 2.4 times less risky than West Pharmaceutical. It trades about -0.02 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  52,696  in Intuitive Surgical on December 29, 2024 and sell it today you would lose (1,906) from holding Intuitive Surgical or give up 3.62% of portfolio value over 90 days.

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

Intuitive Surgical  vs.  West Pharmaceutical Services

Intuitive Surgical

Risk-Adjusted Performance

Very Weak

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

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 Intuitive Surgical and West Pharmaceutical

The main advantage of trading using opposite Intuitive Surgical and West Pharmaceutical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intuitive Surgical 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 Intuitive Surgical 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.

Check out your portfolio center.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.