Correlation Between Prestige Brand and Benchmark Botanics

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

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

Diversification Opportunities for Prestige Brand and Benchmark Botanics

-0.15

Correlation Coefficient

Prestige Brand  Benchmark Botanics

Good diversification

The 3 months correlation between Prestige and Benchmark is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Prestige Brand Holdings and Benchmark Botanics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Benchmark Botanics and Prestige Brand 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 Prestige Brand Holdings are associated (or correlated) with Benchmark Botanics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Benchmark Botanics has no effect on the direction of Prestige Brand i.e., Prestige Brand and Benchmark Botanics go up and down completely randomly.

Pair Corralation between Prestige Brand and Benchmark Botanics

Considering the 90-day investment horizon Prestige Brand Holdings is expected to generate 0.17 times more return on investment than Benchmark Botanics. However, Prestige Brand Holdings is 5.83 times less risky than Benchmark Botanics. It trades about 0.09 of its potential returns per unit of risk. Benchmark Botanics is currently generating about -0.16 per unit of risk. If you would invest  7,738  in Prestige Brand Holdings on November 30, 2024 and sell it today you would earn a total of  737.00  from holding Prestige Brand Holdings or generate 9.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.56%
Values	Daily Returns

Prestige Brand Holdings  vs.  Benchmark Botanics

Prestige Brand Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prestige Brand Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Prestige Brand is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Benchmark Botanics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Benchmark Botanics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward-looking signals remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Prestige Brand and Benchmark Botanics

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

The idea behind Prestige Brand Holdings and Benchmark Botanics 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.