Can any of the company-specific risk be diversified away by investing in both West Pharmaceutical and InfuSystems Holdings 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 InfuSystems Holdings 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 InfuSystems Holdings, you can compare the effects of market volatilities on West Pharmaceutical and InfuSystems Holdings 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 InfuSystems Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of West Pharmaceutical and InfuSystems Holdings.
Diversification Opportunities for West Pharmaceutical and InfuSystems Holdings
The 3 months correlation between West and InfuSystems is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding West Pharmaceutical Services and InfuSystems Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InfuSystems Holdings 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 InfuSystems Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InfuSystems Holdings has no effect on the direction of West Pharmaceutical i.e., West Pharmaceutical and InfuSystems Holdings go up and down completely randomly.
Pair Corralation between West Pharmaceutical and InfuSystems Holdings
Considering the 90-day investment horizon West Pharmaceutical Services is expected to generate 0.68 times more return on investment than InfuSystems Holdings. However, West Pharmaceutical Services is 1.48 times less risky than InfuSystems Holdings. It trades about -0.01 of its potential returns per unit of risk. InfuSystems Holdings is currently generating about -0.02 per unit of risk. If you would invest 35,661 in West Pharmaceutical Services on March 6, 2024 and sell it today you would lose (2,788) from holding West Pharmaceutical Services or give up 7.82% of portfolio value over 90 days.
Over the last 90 days West Pharmaceutical Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.
Over the last 90 days InfuSystems Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in July 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.