Correlation Between Stepan and Cumberland Pharmaceuticals

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

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

Diversification Opportunities for Stepan and Cumberland Pharmaceuticals

-0.68

Correlation Coefficient

Stepan  Cumberland Pharmaceuticals

Excellent diversification

The 3 months correlation between Stepan and Cumberland is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Cumberland Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cumberland Pharmaceuticals and Stepan 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 Stepan Company are associated (or correlated) with Cumberland Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cumberland Pharmaceuticals has no effect on the direction of Stepan i.e., Stepan and Cumberland Pharmaceuticals go up and down completely randomly.

Pair Corralation between Stepan and Cumberland Pharmaceuticals

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Cumberland Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 7.27 times less risky than Cumberland Pharmaceuticals. The stock trades about -0.1 of its potential returns per unit of risk. The Cumberland Pharmaceuticals is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  232.00  in Cumberland Pharmaceuticals on December 27, 2024 and sell it today you would earn a total of  201.00  from holding Cumberland Pharmaceuticals or generate 86.64% return on investment over 90 days.

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

Stepan Company  vs.  Cumberland Pharmaceuticals

Stepan Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stepan Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Cumberland Pharmaceuticals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cumberland Pharmaceuticals are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, Cumberland Pharmaceuticals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepan and Cumberland Pharmaceuticals

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

The idea behind Stepan Company and Cumberland Pharmaceuticals 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.