Correlation Between Dow Jones and Prudential Absolute
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Prudential Absolute 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 Dow Jones and Prudential Absolute into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Prudential Absolute Return, you can compare the effects of market volatilities on Dow Jones and Prudential Absolute 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 Dow Jones with a short position of Prudential Absolute. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Prudential Absolute.
Diversification Opportunities for Dow Jones and Prudential Absolute
-0.33 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Dow and Prudential is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Prudential Absolute Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Absolute and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with Prudential Absolute. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Absolute has no effect on the direction of Dow Jones i.e., Dow Jones and Prudential Absolute go up and down completely randomly.
Pair Corralation between Dow Jones and Prudential Absolute
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 12.41 times more return on investment than Prudential Absolute. However, Dow Jones is 12.41 times more volatile than Prudential Absolute Return. It trades about 0.33 of its potential returns per unit of risk. Prudential Absolute Return is currently generating about 0.18 per unit of risk. If you would invest 4,239,227 in Dow Jones Industrial on November 3, 2024 and sell it today you would earn a total of 215,239 from holding Dow Jones Industrial or generate 5.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Prudential Absolute Return
Performance |
| Timeline |
Dow Jones and Prudential Absolute Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Prudential Absolute Return
Pair trading matchups for Prudential Absolute
Pair Trading with Dow Jones and Prudential Absolute
The main advantage of trading using opposite Dow Jones and Prudential Absolute positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Prudential Absolute 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 Prudential Absolute will offset losses from the drop in Prudential Absolute's long position.| Dow Jones vs. Rambler Metals and | Dow Jones vs. Nicola Mining | Dow Jones vs. Old Dominion Freight | Dow Jones vs. United Guardian |
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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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