Correlation Between Ironwood Pharmaceuticals and CbdMD

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Can any of the company-specific risk be diversified away by investing in both Ironwood Pharmaceuticals and CbdMD 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 Ironwood Pharmaceuticals and CbdMD into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ironwood Pharmaceuticals and cbdMD Inc, you can compare the effects of market volatilities on Ironwood Pharmaceuticals and CbdMD 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 Ironwood Pharmaceuticals with a short position of CbdMD. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ironwood Pharmaceuticals and CbdMD.

Diversification Opportunities for Ironwood Pharmaceuticals and CbdMD

0.04
  Correlation Coefficient

Significant diversification

The 3 months correlation between Ironwood and CbdMD is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Ironwood Pharmaceuticals and cbdMD Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on cbdMD Inc and Ironwood 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 Ironwood Pharmaceuticals are associated (or correlated) with CbdMD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of cbdMD Inc has no effect on the direction of Ironwood Pharmaceuticals i.e., Ironwood Pharmaceuticals and CbdMD go up and down completely randomly.

Pair Corralation between Ironwood Pharmaceuticals and CbdMD

Given the investment horizon of 90 days Ironwood Pharmaceuticals is expected to generate 0.69 times more return on investment than CbdMD. However, Ironwood Pharmaceuticals is 1.45 times less risky than CbdMD. It trades about -0.05 of its potential returns per unit of risk. cbdMD Inc is currently generating about -0.08 per unit of risk. If you would invest  1,160  in Ironwood Pharmaceuticals on March 4, 2024 and sell it today you would lose (530.00) from holding Ironwood Pharmaceuticals or give up 45.69% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy96.37%
ValuesDaily Returns

Ironwood Pharmaceuticals  vs.  cbdMD Inc

 Performance 
       Timeline  
Ironwood Pharmaceuticals 

Risk-Adjusted Performance

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Over the last 90 days Ironwood Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in July 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
cbdMD Inc 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days cbdMD Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CbdMD is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Ironwood Pharmaceuticals and CbdMD Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ironwood Pharmaceuticals and CbdMD

The main advantage of trading using opposite Ironwood Pharmaceuticals and CbdMD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ironwood Pharmaceuticals position performs unexpectedly, CbdMD 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 CbdMD will offset losses from the drop in CbdMD's long position.
The idea behind Ironwood Pharmaceuticals and cbdMD Inc 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.

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