Correlation Between West Pharmaceutical and Viemed Healthcare

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

Diversification Opportunities for West Pharmaceutical and Viemed Healthcare

0.26

Correlation Coefficient

West Pharmaceutical  Viemed Healthcare

Modest diversification

The 3 months correlation between West and Viemed is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding West Pharmaceutical Services and Viemed Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Viemed Healthcare 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 Viemed Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Viemed Healthcare has no effect on the direction of West Pharmaceutical i.e., West Pharmaceutical and Viemed Healthcare go up and down completely randomly.

Pair Corralation between West Pharmaceutical and Viemed Healthcare

Considering the 90-day investment horizon West Pharmaceutical is expected to generate 1.86 times less return on investment than Viemed Healthcare. In addition to that, West Pharmaceutical is 1.38 times more volatile than Viemed Healthcare. It trades about 0.05 of its total potential returns per unit of risk. Viemed Healthcare is currently generating about 0.14 per unit of volatility. If you would invest  747.00  in Viemed Healthcare on September 12, 2024 and sell it today you would earn a total of  133.00  from holding Viemed Healthcare or generate 17.8% return on investment over 90 days.

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

West Pharmaceutical Services  vs.  Viemed Healthcare

West Pharmaceutical

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in West Pharmaceutical Services are ranked lower than 4 (%) 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.

Viemed Healthcare

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Viemed Healthcare are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, Viemed Healthcare exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with West Pharmaceutical and Viemed Healthcare

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

The idea behind West Pharmaceutical Services and Viemed Healthcare 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.