Correlation Between Prudential Government and Aim Investment
Can any of the company-specific risk be diversified away by investing in both Prudential Government and Aim Investment 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 Prudential Government and Aim Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prudential Government Money and Aim Investment Secs, you can compare the effects of market volatilities on Prudential Government and Aim Investment 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 Prudential Government with a short position of Aim Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Government and Aim Investment.
Diversification Opportunities for Prudential Government and Aim Investment
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Prudential and Aim is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Government Money and Aim Investment Secs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aim Investment Secs and Prudential Government 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 Prudential Government Money are associated (or correlated) with Aim Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aim Investment Secs has no effect on the direction of Prudential Government i.e., Prudential Government and Aim Investment go up and down completely randomly.
Pair Corralation between Prudential Government and Aim Investment
Assuming the 90 days horizon Prudential Government is expected to generate 11.94 times less return on investment than Aim Investment. In addition to that, Prudential Government is 3.94 times more volatile than Aim Investment Secs. It trades about 0.0 of its total potential returns per unit of risk. Aim Investment Secs is currently generating about 0.14 per unit of volatility. If you would invest 91.00 in Aim Investment Secs on September 2, 2024 and sell it today you would earn a total of 9.00 from holding Aim Investment Secs or generate 9.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 88.91% |
| Values | Daily Returns |
Prudential Government Money vs. Aim Investment Secs
Performance |
| Timeline |
| Prudential Government |
| Aim Investment Secs |
Prudential Government and Aim Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prudential Government and Aim Investment
The main advantage of trading using opposite Prudential Government and Aim Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Government position performs unexpectedly, Aim Investment 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 Aim Investment will offset losses from the drop in Aim Investment's long position.The idea behind Prudential Government Money and Aim Investment Secs 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.
| Aim Investment vs. Vanguard Total Stock | Aim Investment vs. Vanguard 500 Index | Aim Investment vs. Vanguard Total Stock | Aim Investment vs. Vanguard Total Stock |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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