Correlation Between West Pharmaceutical and Hologic

Can any of the company-specific risk be diversified away by investing in both West Pharmaceutical and Hologic 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 West Pharmaceutical and Hologic into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between West Pharmaceutical Services and Hologic, you can compare the effects of market volatilities on West Pharmaceutical and Hologic 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 West Pharmaceutical with a short position of Hologic. Check out your portfolio center. Please also check ongoing floating volatility patterns of West Pharmaceutical and Hologic.

Diversification Opportunities for West Pharmaceutical and Hologic

0.2

Correlation Coefficient

West Pharmaceutical  Hologic

Modest diversification

The 3 months correlation between West and Hologic is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding West Pharmaceutical Services and Hologic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hologic and West Pharmaceutical 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 West Pharmaceutical Services are associated (or correlated) with Hologic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hologic has no effect on the direction of West Pharmaceutical i.e., West Pharmaceutical and Hologic go up and down completely randomly.

Pair Corralation between West Pharmaceutical and Hologic

Considering the 90-day investment horizon West Pharmaceutical is expected to generate 1.38 times less return on investment than Hologic. In addition to that, West Pharmaceutical is 1.66 times more volatile than Hologic. It trades about 0.02 of its total potential returns per unit of risk. Hologic is currently generating about 0.04 per unit of volatility. If you would invest  7,380  in Hologic on February 15, 2024 and sell it today you would earn a total of  185.00  from holding Hologic or generate 2.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

West Pharmaceutical Services  vs.  Hologic

West Pharmaceutical

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in West Pharmaceutical Services are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, West Pharmaceutical is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Hologic

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hologic are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Hologic is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with West Pharmaceutical and Hologic

The main advantage of trading using opposite West Pharmaceutical and Hologic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if West Pharmaceutical position performs unexpectedly, Hologic 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 Hologic will offset losses from the drop in Hologic's long position.

The idea behind West Pharmaceutical Services and Hologic 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 CEOs Directory module to screen CEOs from public companies around the world.