Correlation Between Cumberland Pharmaceuticals and Emergent Biosolutions
Can any of the company-specific risk be diversified away by investing in both Cumberland Pharmaceuticals and Emergent Biosolutions 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 Cumberland Pharmaceuticals and Emergent Biosolutions into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cumberland Pharmaceuticals and Emergent Biosolutions, you can compare the effects of market volatilities on Cumberland Pharmaceuticals and Emergent Biosolutions 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 Cumberland Pharmaceuticals with a short position of Emergent Biosolutions. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cumberland Pharmaceuticals and Emergent Biosolutions.
Diversification Opportunities for Cumberland Pharmaceuticals and Emergent Biosolutions
-0.25 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Cumberland and Emergent is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Cumberland Pharmaceuticals and Emergent Biosolutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emergent Biosolutions and Cumberland Pharmaceuticals 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 Cumberland Pharmaceuticals are associated (or correlated) with Emergent Biosolutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emergent Biosolutions has no effect on the direction of Cumberland Pharmaceuticals i.e., Cumberland Pharmaceuticals and Emergent Biosolutions go up and down completely randomly.
Pair Corralation between Cumberland Pharmaceuticals and Emergent Biosolutions
Given the investment horizon of 90 days Cumberland Pharmaceuticals is expected to under-perform the Emergent Biosolutions. But the stock apears to be less risky and, when comparing its historical volatility, Cumberland Pharmaceuticals is 2.28 times less risky than Emergent Biosolutions. The stock trades about -0.02 of its potential returns per unit of risk. The Emergent Biosolutions is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,246 in Emergent Biosolutions on August 29, 2024 and sell it today you would lose (243.00) from holding Emergent Biosolutions or give up 19.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cumberland Pharmaceuticals vs. Emergent Biosolutions
Performance |
| Timeline |
| Cumberland Pharmaceuticals |
| Emergent Biosolutions |
Cumberland Pharmaceuticals and Emergent Biosolutions Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cumberland Pharmaceuticals and Emergent Biosolutions
The main advantage of trading using opposite Cumberland Pharmaceuticals and Emergent Biosolutions positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cumberland Pharmaceuticals position performs unexpectedly, Emergent Biosolutions 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 Emergent Biosolutions will offset losses from the drop in Emergent Biosolutions' long position.The idea behind Cumberland Pharmaceuticals and Emergent Biosolutions 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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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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