Correlation Between West Pharmaceutical and Innovative Eyewear

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

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

Diversification Opportunities for West Pharmaceutical and Innovative Eyewear

0.82

Correlation Coefficient

West Pharmaceutical  Innovative Eyewear

Very poor diversification

The 3 months correlation between West and Innovative is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding West Pharmaceutical Services and Innovative Eyewear in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovative Eyewear and West Pharmaceutical 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 West Pharmaceutical Services are associated (or correlated) with Innovative Eyewear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovative Eyewear has no effect on the direction of West Pharmaceutical i.e., West Pharmaceutical and Innovative Eyewear go up and down completely randomly.

Pair Corralation between West Pharmaceutical and Innovative Eyewear

Considering the 90-day investment horizon West Pharmaceutical Services is expected to generate 1.01 times more return on investment than Innovative Eyewear. However, West Pharmaceutical is 1.01 times more volatile than Innovative Eyewear. It trades about -0.08 of its potential returns per unit of risk. Innovative Eyewear is currently generating about -0.15 per unit of risk. If you would invest  32,861  in West Pharmaceutical Services on December 29, 2024 and sell it today you would lose (10,255) from holding West Pharmaceutical Services or give up 31.21% of portfolio value over 90 days.

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

West Pharmaceutical Services  vs.  Innovative Eyewear

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.

Innovative Eyewear

Risk-Adjusted Performance

Very Weak

Over the last 90 days Innovative Eyewear 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 fundamental 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.

Pair Trading with West Pharmaceutical and Innovative Eyewear

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

The idea behind West Pharmaceutical Services and Innovative Eyewear 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.