Correlation Between Utilities Portfolio and Prudential Utility
Can any of the company-specific risk be diversified away by investing in both Utilities Portfolio and Prudential Utility 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 Utilities Portfolio and Prudential Utility into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Utilities Portfolio Utilities and Prudential Utility Fund, you can compare the effects of market volatilities on Utilities Portfolio and Prudential Utility 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 Utilities Portfolio with a short position of Prudential Utility. Check out your portfolio center. Please also check ongoing floating volatility patterns of Utilities Portfolio and Prudential Utility.
Diversification Opportunities for Utilities Portfolio and Prudential Utility
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Utilities and Prudential is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Utilities Portfolio Utilities and Prudential Utility Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Utility and Utilities Portfolio 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 Utilities Portfolio Utilities are associated (or correlated) with Prudential Utility. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Utility has no effect on the direction of Utilities Portfolio i.e., Utilities Portfolio and Prudential Utility go up and down completely randomly.
Pair Corralation between Utilities Portfolio and Prudential Utility
Assuming the 90 days horizon Utilities Portfolio is expected to generate 1.03 times less return on investment than Prudential Utility. In addition to that, Utilities Portfolio is 1.02 times more volatile than Prudential Utility Fund. It trades about 0.24 of its total potential returns per unit of risk. Prudential Utility Fund is currently generating about 0.25 per unit of volatility. If you would invest 1,659 in Prudential Utility Fund on September 1, 2024 and sell it today you would earn a total of 99.00 from holding Prudential Utility Fund or generate 5.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Utilities Portfolio Utilities vs. Prudential Utility Fund
Performance |
| Timeline |
| Utilities Portfolio |
| Prudential Utility |
Utilities Portfolio and Prudential Utility Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Utilities Portfolio and Prudential Utility
The main advantage of trading using opposite Utilities Portfolio and Prudential Utility positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Utilities Portfolio position performs unexpectedly, Prudential Utility 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 Utility will offset losses from the drop in Prudential Utility's long position.The idea behind Utilities Portfolio Utilities and Prudential Utility Fund 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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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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