Correlation Between Sealed Air and Cumberland Pharmaceuticals

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

Diversification Opportunities for Sealed Air and Cumberland Pharmaceuticals

-0.31
  Correlation Coefficient

Very good diversification

The 3 months correlation between Sealed and Cumberland is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Sealed Air and Cumberland Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cumberland Pharmaceuticals and Sealed Air 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 Sealed Air are associated (or correlated) with Cumberland Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cumberland Pharmaceuticals has no effect on the direction of Sealed Air i.e., Sealed Air and Cumberland Pharmaceuticals go up and down completely randomly.

Pair Corralation between Sealed Air and Cumberland Pharmaceuticals

Considering the 90-day investment horizon Sealed Air is expected to generate 6.42 times less return on investment than Cumberland Pharmaceuticals. But when comparing it to its historical volatility, Sealed Air is 8.14 times less risky than Cumberland Pharmaceuticals. It trades about 0.14 of its potential returns per unit of risk. Cumberland Pharmaceuticals is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  135.00  in Cumberland Pharmaceuticals on September 11, 2024 and sell it today you would earn a total of  109.00  from holding Cumberland Pharmaceuticals or generate 80.74% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy98.44%
ValuesDaily Returns

Sealed Air  vs.  Cumberland Pharmaceuticals

 Performance 
       Timeline  
Sealed Air 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Sealed Air are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting technical and fundamental indicators, Sealed Air exhibited solid returns over the last few months and may actually be approaching a breakup point.
Cumberland Pharmaceuticals 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
Very Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Cumberland Pharmaceuticals are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain forward indicators, Cumberland Pharmaceuticals showed solid returns over the last few months and may actually be approaching a breakup point.

Sealed Air and Cumberland Pharmaceuticals Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Sealed Air and Cumberland Pharmaceuticals

The main advantage of trading using opposite Sealed Air and Cumberland Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sealed Air position performs unexpectedly, Cumberland Pharmaceuticals 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 Cumberland Pharmaceuticals will offset losses from the drop in Cumberland Pharmaceuticals' long position.
The idea behind Sealed Air and Cumberland Pharmaceuticals 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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