Correlation Between Cumberland Pharmaceuticals and HUTCHMED DRC

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

By analyzing existing cross correlation between Cumberland Pharmaceuticals and HUTCHMED DRC, you can compare the effects of market volatilities on Cumberland Pharmaceuticals and HUTCHMED DRC 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 HUTCHMED DRC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cumberland Pharmaceuticals and HUTCHMED DRC.

Diversification Opportunities for Cumberland Pharmaceuticals and HUTCHMED DRC

-0.09

Correlation Coefficient

Cumberland Pharmaceuticals  HUTCHMED DRC

Good diversification

The 3 months correlation between Cumberland and HUTCHMED is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Cumberland Pharmaceuticals and HUTCHMED DRC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HUTCHMED DRC 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 HUTCHMED DRC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HUTCHMED DRC has no effect on the direction of Cumberland Pharmaceuticals i.e., Cumberland Pharmaceuticals and HUTCHMED DRC go up and down completely randomly.

Pair Corralation between Cumberland Pharmaceuticals and HUTCHMED DRC

Given the investment horizon of 90 days Cumberland Pharmaceuticals is expected to under-perform the HUTCHMED DRC. But the stock apears to be less risky and, when comparing its historical volatility, Cumberland Pharmaceuticals is 1.51 times less risky than HUTCHMED DRC. The stock trades about -0.12 of its potential returns per unit of risk. The HUTCHMED DRC is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,800  in HUTCHMED DRC on July 30, 2024 and sell it today you would earn a total of  285.00  from holding HUTCHMED DRC or generate 15.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Cumberland Pharmaceuticals  vs.  HUTCHMED DRC

Cumberland Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cumberland 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 forward indicators remain fairly strong which may send shares a bit higher in November 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

HUTCHMED DRC

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HUTCHMED DRC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, HUTCHMED DRC displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cumberland Pharmaceuticals and HUTCHMED DRC

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

The idea behind Cumberland Pharmaceuticals and HUTCHMED DRC 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.