Correlation Between Prestige Brand and Universal Health

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

Diversification Opportunities for Prestige Brand and Universal Health

-0.38

Correlation Coefficient

Prestige Brand  Universal Health

Very good diversification

The 3 months correlation between Prestige and Universal is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Prestige Brand Holdings and Universal Health Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Health Services 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 Universal Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Health Services has no effect on the direction of Prestige Brand i.e., Prestige Brand and Universal Health go up and down completely randomly.

Pair Corralation between Prestige Brand and Universal Health

Considering the 90-day investment horizon Prestige Brand Holdings is expected to generate 1.13 times more return on investment than Universal Health. However, Prestige Brand is 1.13 times more volatile than Universal Health Services. It trades about 0.08 of its potential returns per unit of risk. Universal Health Services is currently generating about 0.04 per unit of risk. If you would invest  7,738  in Prestige Brand Holdings on December 30, 2024 and sell it today you would earn a total of  771.00  from holding Prestige Brand Holdings or generate 9.96% 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.  Universal Health Services

Prestige Brand Holdings

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Prestige Brand Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating fundamental drivers, Prestige Brand may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Universal Health Services

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Health Services are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical indicators, Universal Health 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 Universal Health

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

The idea behind Prestige Brand Holdings and Universal Health Services 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.