Correlation Between Tandem Diabetes and West Pharmaceutical

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

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

Diversification Opportunities for Tandem Diabetes and West Pharmaceutical

0.77

Correlation Coefficient

Tandem Diabetes  West Pharmaceutical

Poor diversification

The 3 months correlation between Tandem and West is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Tandem Diabetes Care and West Pharmaceutical Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Pharmaceutical and Tandem Diabetes 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 Tandem Diabetes Care 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 Tandem Diabetes i.e., Tandem Diabetes and West Pharmaceutical go up and down completely randomly.

Pair Corralation between Tandem Diabetes and West Pharmaceutical

Given the investment horizon of 90 days Tandem Diabetes Care is expected to under-perform the West Pharmaceutical. But the stock apears to be less risky and, when comparing its historical volatility, Tandem Diabetes Care is 1.02 times less risky than West Pharmaceutical. The stock trades about -0.16 of its potential returns per unit of risk. The West Pharmaceutical Services is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  33,301  in West Pharmaceutical Services on December 27, 2024 and sell it today you would lose (10,695) from holding West Pharmaceutical Services or give up 32.12% of portfolio value over 90 days.

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

Tandem Diabetes Care  vs.  West Pharmaceutical Services

Tandem Diabetes Care

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tandem Diabetes Care 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 fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm 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 Tandem Diabetes and West Pharmaceutical

The main advantage of trading using opposite Tandem Diabetes and West Pharmaceutical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tandem Diabetes 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 Tandem Diabetes Care 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 Commodity Directory module to find actively traded commodities issued by global exchanges.