Correlation Between Prudential Government and First Trust
Can any of the company-specific risk be diversified away by investing in both Prudential Government and First Trust 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 First Trust 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 First Trust Preferred, you can compare the effects of market volatilities on Prudential Government and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Government and First Trust.
Diversification Opportunities for Prudential Government and First Trust
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Prudential and First is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Government Income and First Trust Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Preferred 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Preferred has no effect on the direction of Prudential Government i.e., Prudential Government and First Trust go up and down completely randomly.
Pair Corralation between Prudential Government and First Trust
Assuming the 90 days horizon Prudential Government is expected to generate 2.23 times less return on investment than First Trust. In addition to that, Prudential Government is 1.79 times more volatile than First Trust Preferred. It trades about 0.06 of its total potential returns per unit of risk. First Trust Preferred is currently generating about 0.25 per unit of volatility. If you would invest 1,676 in First Trust Preferred on September 12, 2024 and sell it today you would earn a total of 333.00 from holding First Trust Preferred or generate 19.87% 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. First Trust Preferred
Performance |
| Timeline |
| Prudential Government |
| First Trust Preferred |
Prudential Government and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prudential Government and First Trust
The main advantage of trading using opposite Prudential Government and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Government position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.The idea behind Prudential Government Income and First Trust Preferred 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.
| First Trust vs. Prudential Government Income | First Trust vs. Goldman Sachs Government | First Trust vs. Sit Government Securities | First Trust vs. Intermediate Government Bond |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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