Correlation Between Zoetis and Prestige Brand

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

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

Diversification Opportunities for Zoetis and Prestige Brand

-0.8

Correlation Coefficient

Zoetis  Prestige Brand

Pay attention - limited upside

The 3 months correlation between Zoetis and Prestige is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Zoetis Inc 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 Zoetis 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 Zoetis Inc 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 Zoetis i.e., Zoetis and Prestige Brand go up and down completely randomly.

Pair Corralation between Zoetis and Prestige Brand

Considering the 90-day investment horizon Zoetis Inc is expected to under-perform the Prestige Brand. In addition to that, Zoetis is 1.1 times more volatile than Prestige Brand Holdings. It trades about -0.08 of its total potential returns per unit of risk. Prestige Brand Holdings is currently generating about 0.17 per unit of volatility. If you would invest  7,412  in Prestige Brand Holdings on September 13, 2024 and sell it today you would earn a total of  943.00  from holding Prestige Brand Holdings or generate 12.72% return on investment over 90 days.

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

Zoetis Inc  vs.  Prestige Brand Holdings

Zoetis Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zoetis Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

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.

Pair Trading with Zoetis and Prestige Brand

The main advantage of trading using opposite Zoetis and Prestige Brand positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zoetis 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 Zoetis Inc 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.