Correlation Between Dentsply Sirona and West Pharmaceutical

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

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

Diversification Opportunities for Dentsply Sirona and West Pharmaceutical

-0.71

Correlation Coefficient

Dentsply Sirona  West Pharmaceutical

Pay attention - limited upside

The 3 months correlation between Dentsply and West is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Dentsply Sirona and West Pharmaceutical Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Pharmaceutical and Dentsply Sirona 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 Dentsply Sirona 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 Dentsply Sirona i.e., Dentsply Sirona and West Pharmaceutical go up and down completely randomly.

Pair Corralation between Dentsply Sirona and West Pharmaceutical

Given the investment horizon of 90 days Dentsply Sirona is expected to generate 13.18 times less return on investment than West Pharmaceutical. In addition to that, Dentsply Sirona is 1.26 times more volatile than West Pharmaceutical Services. It trades about 0.01 of its total potential returns per unit of risk. West Pharmaceutical Services is currently generating about 0.08 per unit of volatility. If you would invest  32,957  in West Pharmaceutical Services on October 22, 2024 and sell it today you would earn a total of  677.00  from holding West Pharmaceutical Services or generate 2.05% return on investment over 90 days.

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

Dentsply Sirona  vs.  West Pharmaceutical Services

Dentsply Sirona

Risk-Adjusted Performance

0 of 100

Very Weak

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

West Pharmaceutical

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in West Pharmaceutical Services are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, West Pharmaceutical unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dentsply Sirona and West Pharmaceutical

The main advantage of trading using opposite Dentsply Sirona and West Pharmaceutical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dentsply Sirona 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 Dentsply Sirona 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.