Correlation Between Cumberland Pharmaceuticals and Prestige Brand

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

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

Diversification Opportunities for Cumberland Pharmaceuticals and Prestige Brand

-0.44

Correlation Coefficient

Cumberland Pharmaceuticals  Prestige Brand

Very good diversification

The 3 months correlation between Cumberland and Prestige is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Cumberland Pharmaceuticals 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 Cumberland Pharmaceuticals 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 Cumberland Pharmaceuticals 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 Cumberland Pharmaceuticals i.e., Cumberland Pharmaceuticals and Prestige Brand go up and down completely randomly.

Pair Corralation between Cumberland Pharmaceuticals and Prestige Brand

Given the investment horizon of 90 days Cumberland Pharmaceuticals is expected to generate 2.01 times less return on investment than Prestige Brand. In addition to that, Cumberland Pharmaceuticals is 3.17 times more volatile than Prestige Brand Holdings. It trades about 0.02 of its total potential returns per unit of risk. Prestige Brand Holdings is currently generating about 0.15 per unit of volatility. If you would invest  7,550  in Prestige Brand Holdings on September 4, 2024 and sell it today you would earn a total of  922.00  from holding Prestige Brand Holdings or generate 12.21% return on investment over 90 days.

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

Cumberland Pharmaceuticals  vs.  Prestige Brand Holdings

Cumberland Pharmaceuticals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cumberland Pharmaceuticals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, Cumberland Pharmaceuticals is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Prestige Brand Holdings

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prestige Brand Holdings are ranked lower than 12 (%) 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 January 2025.

Pair Trading with Cumberland Pharmaceuticals and Prestige Brand

The main advantage of trading using opposite Cumberland Pharmaceuticals and Prestige Brand positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cumberland Pharmaceuticals 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 Cumberland Pharmaceuticals 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.

Check out your portfolio center.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.