Correlation Between Primo Brands and Drive Shack

Can any of the company-specific risk be diversified away by investing in both Primo Brands and Drive Shack 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 Primo Brands and Drive Shack into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Primo Brands and Drive Shack, you can compare the effects of market volatilities on Primo Brands and Drive Shack 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 Primo Brands with a short position of Drive Shack. Check out your portfolio center. Please also check ongoing floating volatility patterns of Primo Brands and Drive Shack.

Diversification Opportunities for Primo Brands and Drive Shack

-0.54

Correlation Coefficient

Primo Brands  Drive Shack

Excellent diversification

The 3 months correlation between Primo and Drive is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Primo Brands and Drive Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Drive Shack and Primo Brands 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 Primo Brands are associated (or correlated) with Drive Shack. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Drive Shack has no effect on the direction of Primo Brands i.e., Primo Brands and Drive Shack go up and down completely randomly.

Pair Corralation between Primo Brands and Drive Shack

Given the investment horizon of 90 days Primo Brands is expected to generate 30.63 times less return on investment than Drive Shack. But when comparing it to its historical volatility, Primo Brands is 8.03 times less risky than Drive Shack. It trades about 0.11 of its potential returns per unit of risk. Drive Shack is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  21.00  in Drive Shack on October 11, 2024 and sell it today you would earn a total of  19.00  from holding Drive Shack or generate 90.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	2.83%
Values	Daily Returns

Primo Brands  vs.  Drive Shack

Primo Brands

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Primo Brands are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating primary indicators, Primo Brands sustained solid returns over the last few months and may actually be approaching a breakup point.

Drive Shack

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Drive Shack has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical indicators, Drive Shack is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Primo Brands and Drive Shack

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

The idea behind Primo Brands and Drive Shack 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.