Correlation Between Catalent and Primo Brands

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

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

Diversification Opportunities for Catalent and Primo Brands

0.61

Correlation Coefficient

Catalent  Primo Brands

Poor diversification

The 3 months correlation between Catalent and Primo is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Catalent and Primo Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Primo Brands and Catalent 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 Catalent are associated (or correlated) with Primo Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Primo Brands has no effect on the direction of Catalent i.e., Catalent and Primo Brands go up and down completely randomly.

Pair Corralation between Catalent and Primo Brands

Given the investment horizon of 90 days Catalent is expected to generate 4.08 times less return on investment than Primo Brands. But when comparing it to its historical volatility, Catalent is 3.26 times less risky than Primo Brands. It trades about 0.15 of its potential returns per unit of risk. Primo Brands is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,431  in Primo Brands on September 25, 2024 and sell it today you would earn a total of  669.00  from holding Primo Brands or generate 27.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Catalent  vs.  Primo Brands

Catalent

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Catalent are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, Catalent is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Primo Brands

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Primo Brands are ranked lower than 15 (%) 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.

Pair Trading with Catalent and Primo Brands

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

The idea behind Catalent and Primo Brands 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.