Correlation Between Jennison Natural and Prudential Jennison
Can any of the company-specific risk be diversified away by investing in both Jennison Natural and Prudential Jennison 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 Jennison Natural and Prudential Jennison into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Jennison Natural Resources and Prudential Jennison Growth, you can compare the effects of market volatilities on Jennison Natural and Prudential Jennison 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 Jennison Natural with a short position of Prudential Jennison. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jennison Natural and Prudential Jennison.
Diversification Opportunities for Jennison Natural and Prudential Jennison
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Jennison and Prudential is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Jennison Natural Resources and Prudential Jennison Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Jennison and Jennison Natural 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 Jennison Natural Resources are associated (or correlated) with Prudential Jennison. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Jennison has no effect on the direction of Jennison Natural i.e., Jennison Natural and Prudential Jennison go up and down completely randomly.
Pair Corralation between Jennison Natural and Prudential Jennison
Assuming the 90 days horizon Jennison Natural is expected to generate 2.31 times less return on investment than Prudential Jennison. In addition to that, Jennison Natural is 1.18 times more volatile than Prudential Jennison Growth. It trades about 0.14 of its total potential returns per unit of risk. Prudential Jennison Growth is currently generating about 0.37 per unit of volatility. If you would invest 4,075 in Prudential Jennison Growth on September 5, 2024 and sell it today you would earn a total of 313.00 from holding Prudential Jennison Growth or generate 7.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Jennison Natural Resources vs. Prudential Jennison Growth
Performance |
| Timeline |
| Jennison Natural Res |
| Prudential Jennison |
Jennison Natural and Prudential Jennison Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Jennison Natural and Prudential Jennison
The main advantage of trading using opposite Jennison Natural and Prudential Jennison positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jennison Natural position performs unexpectedly, Prudential Jennison 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 Prudential Jennison will offset losses from the drop in Prudential Jennison's long position.The idea behind Jennison Natural Resources and Prudential Jennison Growth 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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