Correlation Between Alvotech and Cumberland Pharmaceuticals

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

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

Diversification Opportunities for Alvotech and Cumberland Pharmaceuticals

0.83

Correlation Coefficient

Alvotech  Cumberland Pharmaceuticals

Very poor diversification

The 3 months correlation between Alvotech and Cumberland is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Alvotech and Cumberland Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cumberland Pharmaceuticals and Alvotech 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 Alvotech 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 Alvotech i.e., Alvotech and Cumberland Pharmaceuticals go up and down completely randomly.

Pair Corralation between Alvotech and Cumberland Pharmaceuticals

Given the investment horizon of 90 days Alvotech is expected to generate 1.11 times more return on investment than Cumberland Pharmaceuticals. However, Alvotech is 1.11 times more volatile than Cumberland Pharmaceuticals. It trades about 0.04 of its potential returns per unit of risk. Cumberland Pharmaceuticals is currently generating about 0.0 per unit of risk. If you would invest  994.00  in Alvotech on January 29, 2024 and sell it today you would earn a total of  421.00  from holding Alvotech or generate 42.35% return on investment over 90 days.

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

Alvotech  vs.  Cumberland Pharmaceuticals

Alvotech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alvotech has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Alvotech is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

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 latest weak performance, the Stock's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Alvotech and Cumberland Pharmaceuticals

The main advantage of trading using opposite Alvotech and Cumberland Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alvotech 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 Alvotech 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.