Correlation Between Prudential Government and Kensington Defender
Can any of the company-specific risk be diversified away by investing in both Prudential Government and Kensington Defender 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 Kensington Defender into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prudential Government Income and Kensington Defender Institutional, you can compare the effects of market volatilities on Prudential Government and Kensington Defender 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 Kensington Defender. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Government and Kensington Defender.
Diversification Opportunities for Prudential Government and Kensington Defender
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Prudential and Kensington is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Government Income and Kensington Defender Institutio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kensington Defender 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 Income are associated (or correlated) with Kensington Defender. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kensington Defender has no effect on the direction of Prudential Government i.e., Prudential Government and Kensington Defender go up and down completely randomly.
Pair Corralation between Prudential Government and Kensington Defender
Assuming the 90 days horizon Prudential Government is expected to generate 2.72 times less return on investment than Kensington Defender. But when comparing it to its historical volatility, Prudential Government Income is 1.46 times less risky than Kensington Defender. It trades about 0.1 of its potential returns per unit of risk. Kensington Defender Institutional is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 1,048 in Kensington Defender Institutional on September 4, 2024 and sell it today you would earn a total of 22.00 from holding Kensington Defender Institutional or generate 2.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Prudential Government Income vs. Kensington Defender Institutio
Performance |
| Timeline |
| Prudential Government |
| Kensington Defender |
Prudential Government and Kensington Defender Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prudential Government and Kensington Defender
The main advantage of trading using opposite Prudential Government and Kensington Defender positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Government position performs unexpectedly, Kensington Defender 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 Kensington Defender will offset losses from the drop in Kensington Defender's long position.The idea behind Prudential Government Income and Kensington Defender Institutional 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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