Correlation Between Universal Health and Prestige Brand

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

By analyzing existing cross correlation between Universal Health Services and Prestige Brand Holdings, you can compare the effects of market volatilities on Universal Health and Prestige Brand 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 Universal Health with a short position of Prestige Brand. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Health and Prestige Brand.

Diversification Opportunities for Universal Health and Prestige Brand

-0.38

Correlation Coefficient

Universal Health  Prestige Brand

Very good diversification

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

Pair Corralation between Universal Health and Prestige Brand

Considering the 90-day investment horizon Universal Health is expected to generate 1.94 times less return on investment than Prestige Brand. But when comparing it to its historical volatility, Universal Health Services is 1.13 times less risky than Prestige Brand. It trades about 0.04 of its potential returns per unit of risk. Prestige Brand Holdings is currently generating about 0.08 of returns per unit of risk over similar time horizon. 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

Universal Health Services  vs.  Prestige Brand Holdings

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.

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.

Pair Trading with Universal Health and Prestige Brand

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

The idea behind Universal Health Services and Prestige Brand Holdings 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.