Correlation Between Prestige Brand and Avadel Pharmaceuticals

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

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

Diversification Opportunities for Prestige Brand and Avadel Pharmaceuticals

-0.56

Correlation Coefficient

Prestige Brand  Avadel Pharmaceuticals

Excellent diversification

The 3 months correlation between Prestige and Avadel is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Prestige Brand Holdings and Avadel Pharmaceuticals PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avadel Pharmaceuticals and Prestige Brand 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 Prestige Brand Holdings are associated (or correlated) with Avadel Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avadel Pharmaceuticals has no effect on the direction of Prestige Brand i.e., Prestige Brand and Avadel Pharmaceuticals go up and down completely randomly.

Pair Corralation between Prestige Brand and Avadel Pharmaceuticals

Considering the 90-day investment horizon Prestige Brand is expected to generate 2.2 times less return on investment than Avadel Pharmaceuticals. But when comparing it to its historical volatility, Prestige Brand Holdings is 2.64 times less risky than Avadel Pharmaceuticals. It trades about 0.05 of its potential returns per unit of risk. Avadel Pharmaceuticals PLC is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  698.00  in Avadel Pharmaceuticals PLC on September 13, 2024 and sell it today you would earn a total of  375.00  from holding Avadel Pharmaceuticals PLC or generate 53.72% return on investment over 90 days.

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

Prestige Brand Holdings  vs.  Avadel Pharmaceuticals PLC

Prestige Brand Holdings

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prestige Brand Holdings are ranked lower than 13 (%) 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.

Avadel Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avadel Pharmaceuticals PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Prestige Brand and Avadel Pharmaceuticals

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

The idea behind Prestige Brand Holdings and Avadel Pharmaceuticals PLC 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.