Correlation Between Cumberland Pharmaceuticals and Constellation Brands
Can any of the company-specific risk be diversified away by investing in both Cumberland Pharmaceuticals and Constellation Brands 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 Constellation Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cumberland Pharmaceuticals and Constellation Brands Class, you can compare the effects of market volatilities on Cumberland Pharmaceuticals and Constellation Brands 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 Constellation Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cumberland Pharmaceuticals and Constellation Brands.
Diversification Opportunities for Cumberland Pharmaceuticals and Constellation Brands
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Cumberland and Constellation is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Cumberland Pharmaceuticals and Constellation Brands Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Brands 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 Constellation Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Brands has no effect on the direction of Cumberland Pharmaceuticals i.e., Cumberland Pharmaceuticals and Constellation Brands go up and down completely randomly.
Pair Corralation between Cumberland Pharmaceuticals and Constellation Brands
Given the investment horizon of 90 days Cumberland Pharmaceuticals is expected to generate 3.61 times more return on investment than Constellation Brands. However, Cumberland Pharmaceuticals is 3.61 times more volatile than Constellation Brands Class. It trades about 0.22 of its potential returns per unit of risk. Constellation Brands Class is currently generating about 0.13 per unit of risk. If you would invest 112.00 in Cumberland Pharmaceuticals on September 1, 2024 and sell it today you would earn a total of 28.00 from holding Cumberland Pharmaceuticals or generate 25.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cumberland Pharmaceuticals vs. Constellation Brands Class
Performance |
| Timeline |
| Cumberland Pharmaceuticals |
| Constellation Brands |
Cumberland Pharmaceuticals and Constellation Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cumberland Pharmaceuticals and Constellation Brands
The main advantage of trading using opposite Cumberland Pharmaceuticals and Constellation Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cumberland Pharmaceuticals position performs unexpectedly, Constellation Brands 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 Constellation Brands will offset losses from the drop in Constellation Brands' long position.The idea behind Cumberland Pharmaceuticals and Constellation Brands Class 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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