Correlation Between West Pharmaceutical and Bone Biologics

Can any of the company-specific risk be diversified away by investing in both West Pharmaceutical and Bone Biologics 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 Bone Biologics 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 Bone Biologics Corp, you can compare the effects of market volatilities on West Pharmaceutical and Bone Biologics 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 Bone Biologics. Check out your portfolio center. Please also check ongoing floating volatility patterns of West Pharmaceutical and Bone Biologics.

Diversification Opportunities for West Pharmaceutical and Bone Biologics

-0.63

Correlation Coefficient

West Pharmaceutical  Bone Biologics

Excellent diversification

The 3 months correlation between West and Bone is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding West Pharmaceutical Services and Bone Biologics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bone Biologics Corp 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 Bone Biologics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bone Biologics Corp has no effect on the direction of West Pharmaceutical i.e., West Pharmaceutical and Bone Biologics go up and down completely randomly.

Pair Corralation between West Pharmaceutical and Bone Biologics

Considering the 90-day investment horizon West Pharmaceutical is expected to generate 10.37 times less return on investment than Bone Biologics. But when comparing it to its historical volatility, West Pharmaceutical Services is 8.61 times less risky than Bone Biologics. It trades about 0.05 of its potential returns per unit of risk. Bone Biologics Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  6,050  in Bone Biologics Corp on September 13, 2024 and sell it today you would lose (3,270) from holding Bone Biologics Corp or give up 54.05% of portfolio value over 90 days.

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

West Pharmaceutical Services  vs.  Bone Biologics Corp

West Pharmaceutical

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in West Pharmaceutical Services are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, West Pharmaceutical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bone Biologics Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bone Biologics Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting technical and fundamental indicators, Bone Biologics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with West Pharmaceutical and Bone Biologics

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

The idea behind West Pharmaceutical Services and Bone Biologics Corp 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.