Correlation Between United Fire and Cumberland Pharmaceuticals
Can any of the company-specific risk be diversified away by investing in both United Fire and Cumberland Pharmaceuticals 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 United Fire and Cumberland Pharmaceuticals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United Fire Group and Cumberland Pharmaceuticals, you can compare the effects of market volatilities on United Fire and Cumberland Pharmaceuticals 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 United Fire with a short position of Cumberland Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Fire and Cumberland Pharmaceuticals.
Diversification Opportunities for United Fire and Cumberland Pharmaceuticals
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between United and Cumberland is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding United Fire Group and Cumberland Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cumberland Pharmaceuticals and United Fire 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 United Fire Group are associated (or correlated) with Cumberland Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cumberland Pharmaceuticals has no effect on the direction of United Fire i.e., United Fire and Cumberland Pharmaceuticals go up and down completely randomly.
Pair Corralation between United Fire and Cumberland Pharmaceuticals
Given the investment horizon of 90 days United Fire is expected to generate 1.99 times less return on investment than Cumberland Pharmaceuticals. But when comparing it to its historical volatility, United Fire Group is 3.5 times less risky than Cumberland Pharmaceuticals. It trades about 0.2 of its potential returns per unit of risk. Cumberland Pharmaceuticals is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 130.00 in Cumberland Pharmaceuticals on September 12, 2024 and sell it today you would earn a total of 109.50 from holding Cumberland Pharmaceuticals or generate 84.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
United Fire Group vs. Cumberland Pharmaceuticals
Performance |
| Timeline |
| United Fire Group |
| Cumberland Pharmaceuticals |
United Fire and Cumberland Pharmaceuticals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Fire and Cumberland Pharmaceuticals
The main advantage of trading using opposite United Fire and Cumberland Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Fire position performs unexpectedly, Cumberland Pharmaceuticals 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 Cumberland Pharmaceuticals will offset losses from the drop in Cumberland Pharmaceuticals' long position.| United Fire vs. Progressive Corp | United Fire vs. Chubb | United Fire vs. Cincinnati Financial | United Fire vs. W R Berkley |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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