Correlation Between Cumberland Pharmaceuticals and Transocean
Can any of the company-specific risk be diversified away by investing in both Cumberland Pharmaceuticals and Transocean 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 Transocean into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cumberland Pharmaceuticals and Transocean, you can compare the effects of market volatilities on Cumberland Pharmaceuticals and Transocean 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 Transocean. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cumberland Pharmaceuticals and Transocean.
Diversification Opportunities for Cumberland Pharmaceuticals and Transocean
-0.23 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Cumberland and Transocean is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Cumberland Pharmaceuticals and Transocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transocean 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 Transocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transocean has no effect on the direction of Cumberland Pharmaceuticals i.e., Cumberland Pharmaceuticals and Transocean go up and down completely randomly.
Pair Corralation between Cumberland Pharmaceuticals and Transocean
Given the investment horizon of 90 days Cumberland Pharmaceuticals is expected to generate 7.79 times more return on investment than Transocean. However, Cumberland Pharmaceuticals is 7.79 times more volatile than Transocean. It trades about 0.22 of its potential returns per unit of risk. Transocean is currently generating about -0.14 per unit of risk. If you would invest 120.00 in Cumberland Pharmaceuticals on September 12, 2024 and sell it today you would earn a total of 119.50 from holding Cumberland Pharmaceuticals or generate 99.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cumberland Pharmaceuticals vs. Transocean
Performance |
| Timeline |
| Cumberland Pharmaceuticals |
| Transocean |
Cumberland Pharmaceuticals and Transocean Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cumberland Pharmaceuticals and Transocean
The main advantage of trading using opposite Cumberland Pharmaceuticals and Transocean positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cumberland Pharmaceuticals position performs unexpectedly, Transocean 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 Transocean will offset losses from the drop in Transocean's long position.The idea behind Cumberland Pharmaceuticals and Transocean 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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