Correlation Between Prudential Government and Hartford Capital
Can any of the company-specific risk be diversified away by investing in both Prudential Government and Hartford Capital 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 Hartford Capital 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 The Hartford Capital, you can compare the effects of market volatilities on Prudential Government and Hartford Capital 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 Hartford Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Government and Hartford Capital.
Diversification Opportunities for Prudential Government and Hartford Capital
-0.69 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Prudential and Hartford is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Government Income and The Hartford Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hartford Capital 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 Hartford Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hartford Capital has no effect on the direction of Prudential Government i.e., Prudential Government and Hartford Capital go up and down completely randomly.
Pair Corralation between Prudential Government and Hartford Capital
Assuming the 90 days horizon Prudential Government is expected to generate 3.79 times less return on investment than Hartford Capital. But when comparing it to its historical volatility, Prudential Government Income is 1.9 times less risky than Hartford Capital. It trades about 0.06 of its potential returns per unit of risk. The Hartford Capital is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 4,518 in The Hartford Capital on September 12, 2024 and sell it today you would earn a total of 1,577 from holding The Hartford Capital or generate 34.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Prudential Government Income vs. The Hartford Capital
Performance |
| Timeline |
| Prudential Government |
| Hartford Capital |
Prudential Government and Hartford Capital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prudential Government and Hartford Capital
The main advantage of trading using opposite Prudential Government and Hartford Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Government position performs unexpectedly, Hartford Capital 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 Hartford Capital will offset losses from the drop in Hartford Capital's long position.The idea behind Prudential Government Income and The Hartford Capital 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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