Correlation Between ICU Medical and West Pharmaceutical

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

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

Diversification Opportunities for ICU Medical and West Pharmaceutical

0.73

Correlation Coefficient

ICU Medical  West Pharmaceutical

Poor diversification

The 3 months correlation between ICU and West is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding ICU Medical and West Pharmaceutical Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Pharmaceutical and ICU Medical 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 ICU Medical are associated (or correlated) with West Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Pharmaceutical has no effect on the direction of ICU Medical i.e., ICU Medical and West Pharmaceutical go up and down completely randomly.

Pair Corralation between ICU Medical and West Pharmaceutical

Given the investment horizon of 90 days ICU Medical is expected to generate 1.14 times more return on investment than West Pharmaceutical. However, ICU Medical is 1.14 times more volatile than West Pharmaceutical Services. It trades about 0.17 of its potential returns per unit of risk. West Pharmaceutical Services is currently generating about -0.15 per unit of risk. If you would invest  13,005  in ICU Medical on January 9, 2025 and sell it today you would earn a total of  1,608  from holding ICU Medical or generate 12.36% return on investment over 90 days.

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

ICU Medical  vs.  West Pharmaceutical Services

ICU Medical

Risk-Adjusted Performance

Very Weak

Over the last 90 days ICU Medical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

West Pharmaceutical

Risk-Adjusted Performance

Very Weak

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 weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in May 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with ICU Medical and West Pharmaceutical

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

The idea behind ICU Medical and West Pharmaceutical Services 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.