Correlation Between Prestige Brand and Ironwood Pharmaceuticals

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

Diversification Opportunities for Prestige Brand and Ironwood Pharmaceuticals

-0.28

Correlation Coefficient

Prestige Brand  Ironwood Pharmaceuticals

Very good diversification

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

Pair Corralation between Prestige Brand and Ironwood Pharmaceuticals

Considering the 90-day investment horizon Prestige Brand Holdings is expected to generate 0.29 times more return on investment than Ironwood Pharmaceuticals. However, Prestige Brand Holdings is 3.5 times less risky than Ironwood Pharmaceuticals. It trades about 0.18 of its potential returns per unit of risk. Ironwood Pharmaceuticals is currently generating about -0.1 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.  Ironwood Pharmaceuticals

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.

Ironwood Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ironwood Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Prestige Brand and Ironwood Pharmaceuticals

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

The idea behind Prestige Brand Holdings and Ironwood 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.