Correlation Between Prudential Government and Vanguard Small-cap
Can any of the company-specific risk be diversified away by investing in both Prudential Government and Vanguard Small-cap 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 Vanguard Small-cap 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 Vanguard Small Cap Value, you can compare the effects of market volatilities on Prudential Government and Vanguard Small-cap 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 Vanguard Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Government and Vanguard Small-cap.
Diversification Opportunities for Prudential Government and Vanguard Small-cap
-0.72 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Prudential and Vanguard is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Government Income and Vanguard Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap 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 Vanguard Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Prudential Government i.e., Prudential Government and Vanguard Small-cap go up and down completely randomly.
Pair Corralation between Prudential Government and Vanguard Small-cap
Assuming the 90 days horizon Prudential Government Income is expected to under-perform the Vanguard Small-cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Prudential Government Income is 3.09 times less risky than Vanguard Small-cap. The mutual fund trades about -0.2 of its potential returns per unit of risk. The Vanguard Small Cap Value is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 4,752 in Vanguard Small Cap Value on August 26, 2024 and sell it today you would earn a total of 386.00 from holding Vanguard Small Cap Value or generate 8.12% 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. Vanguard Small Cap Value
Performance |
| Timeline |
| Prudential Government |
| Vanguard Small Cap |
Prudential Government and Vanguard Small-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prudential Government and Vanguard Small-cap
The main advantage of trading using opposite Prudential Government and Vanguard Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Government position performs unexpectedly, Vanguard Small-cap 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 Vanguard Small-cap will offset losses from the drop in Vanguard Small-cap's long position.The idea behind Prudential Government Income and Vanguard Small Cap Value 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.
| Vanguard Small-cap vs. Prudential Government Income | Vanguard Small-cap vs. Us Government Securities | Vanguard Small-cap vs. Aig Government Money | Vanguard Small-cap vs. Invesco Government Fund |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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