Correlation Between Prestige Brand and Catalent

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

Diversification Opportunities for Prestige Brand and Catalent

-0.18

Correlation Coefficient

Prestige Brand  Catalent

Good diversification

The 3 months correlation between Prestige and Catalent is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Prestige Brand Holdings and Catalent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Catalent 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 Catalent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Catalent has no effect on the direction of Prestige Brand i.e., Prestige Brand and Catalent go up and down completely randomly.

Pair Corralation between Prestige Brand and Catalent

Considering the 90-day investment horizon Prestige Brand Holdings is expected to generate 2.05 times more return on investment than Catalent. However, Prestige Brand is 2.05 times more volatile than Catalent. It trades about 0.18 of its potential returns per unit of risk. Catalent is currently generating about 0.02 per unit of risk. If you would invest  7,409  in Prestige Brand Holdings on September 2, 2024 and sell it today you would earn a total of  1,068  from holding Prestige Brand Holdings or generate 14.41% return on investment over 90 days.

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

Prestige Brand Holdings  vs.  Catalent

Prestige Brand Holdings

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prestige Brand Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental drivers, Prestige Brand demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Catalent

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Catalent are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, Catalent is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Prestige Brand and Catalent

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

The idea behind Prestige Brand Holdings and Catalent 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.