Correlation Between West Pharmaceutical and Brainsway

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

Diversification Opportunities for West Pharmaceutical and Brainsway

-0.28

Correlation Coefficient

West Pharmaceutical  Brainsway

Very good diversification

The 3 months correlation between West and Brainsway is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding West Pharmaceutical Services and Brainsway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brainsway 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 Brainsway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brainsway has no effect on the direction of West Pharmaceutical i.e., West Pharmaceutical and Brainsway go up and down completely randomly.

Pair Corralation between West Pharmaceutical and Brainsway

Considering the 90-day investment horizon West Pharmaceutical is expected to generate 1.17 times less return on investment than Brainsway. But when comparing it to its historical volatility, West Pharmaceutical Services is 2.03 times less risky than Brainsway. It trades about 0.03 of its potential returns per unit of risk. Brainsway is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  592.00  in Brainsway on January 31, 2024 and sell it today you would lose (87.00) from holding Brainsway or give up 14.7% of portfolio value over 90 days.

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

West Pharmaceutical Services  vs.  Brainsway

West Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days West Pharmaceutical Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, West Pharmaceutical is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Brainsway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brainsway has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with West Pharmaceutical and Brainsway

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

The idea behind West Pharmaceutical Services and Brainsway 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.