Correlation Between Patterson Companies and Prestige Consumer

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

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

Diversification Opportunities for Patterson Companies and Prestige Consumer

0.05

Correlation Coefficient

Patterson Companies  Prestige Consumer

Significant diversification

The 3 months correlation between Patterson and Prestige is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Patterson Companies and Prestige Consumer Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prestige Consumer and Patterson Companies 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 Patterson Companies are associated (or correlated) with Prestige Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prestige Consumer has no effect on the direction of Patterson Companies i.e., Patterson Companies and Prestige Consumer go up and down completely randomly.

Pair Corralation between Patterson Companies and Prestige Consumer

Assuming the 90 days horizon Patterson Companies is expected to generate 7.75 times more return on investment than Prestige Consumer. However, Patterson Companies is 7.75 times more volatile than Prestige Consumer Healthcare. It trades about 0.26 of its potential returns per unit of risk. Prestige Consumer Healthcare is currently generating about -0.51 per unit of risk. If you would invest  2,160  in Patterson Companies on October 10, 2024 and sell it today you would earn a total of  820.00  from holding Patterson Companies or generate 37.96% return on investment over 90 days.

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

Patterson Companies  vs.  Prestige Consumer Healthcare

Patterson Companies

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Patterson Companies are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Patterson Companies reported solid returns over the last few months and may actually be approaching a breakup point.

Prestige Consumer

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prestige Consumer Healthcare are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Prestige Consumer reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Patterson Companies and Prestige Consumer

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

The idea behind Patterson Companies and Prestige Consumer Healthcare 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.