Correlation Between Prestige Brand and Perrigo Company

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

Diversification Opportunities for Prestige Brand and Perrigo Company

0.41

Correlation Coefficient

Prestige Brand  Perrigo Company

Very weak diversification

The 3 months correlation between Prestige and Perrigo is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Prestige Brand Holdings and Perrigo Company PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Perrigo Company 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 Perrigo Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Perrigo Company has no effect on the direction of Prestige Brand i.e., Prestige Brand and Perrigo Company go up and down completely randomly.

Pair Corralation between Prestige Brand and Perrigo Company

Considering the 90-day investment horizon Prestige Brand is expected to generate 3.53 times less return on investment than Perrigo Company. But when comparing it to its historical volatility, Prestige Brand Holdings is 1.3 times less risky than Perrigo Company. It trades about 0.01 of its potential returns per unit of risk. Perrigo Company PLC is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,848  in Perrigo Company PLC on December 2, 2024 and sell it today you would earn a total of  52.00  from holding Perrigo Company PLC or generate 1.83% return on investment over 90 days.

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

Prestige Brand Holdings  vs.  Perrigo Company PLC

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.

Perrigo Company

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Perrigo Company PLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Perrigo Company is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Prestige Brand and Perrigo Company

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

The idea behind Prestige Brand Holdings and Perrigo Company PLC 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.