Correlation Between Alcoa Corp and Cumberland Pharmaceuticals

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

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

Diversification Opportunities for Alcoa Corp and Cumberland Pharmaceuticals

-0.82

Correlation Coefficient

Alcoa Corp  Cumberland Pharmaceuticals

Pay attention - limited upside

The 3 months correlation between Alcoa and Cumberland is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Cumberland Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cumberland Pharmaceuticals and Alcoa Corp 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 Alcoa Corp 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 Alcoa Corp i.e., Alcoa Corp and Cumberland Pharmaceuticals go up and down completely randomly.

Pair Corralation between Alcoa Corp and Cumberland Pharmaceuticals

Allowing for the 90-day total investment horizon Alcoa Corp is expected to generate 0.67 times more return on investment than Cumberland Pharmaceuticals. However, Alcoa Corp is 1.5 times less risky than Cumberland Pharmaceuticals. It trades about 0.15 of its potential returns per unit of risk. Cumberland Pharmaceuticals is currently generating about -0.09 per unit of risk. If you would invest  3,625  in Alcoa Corp on March 8, 2024 and sell it today you would earn a total of  634.00  from holding Alcoa Corp or generate 17.49% return on investment over 90 days.

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

Alcoa Corp  vs.  Cumberland Pharmaceuticals

Alcoa Corp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

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 fragile performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Alcoa Corp and Cumberland Pharmaceuticals

The main advantage of trading using opposite Alcoa Corp and Cumberland Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp 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 Alcoa Corp 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.