Correlation Between Prudential Jennison and Prudential Muni
Can any of the company-specific risk be diversified away by investing in both Prudential Jennison and Prudential Muni 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 Jennison and Prudential Muni into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prudential Jennison Small and Prudential Muni High, you can compare the effects of market volatilities on Prudential Jennison and Prudential Muni 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 Jennison with a short position of Prudential Muni. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Jennison and Prudential Muni.
Diversification Opportunities for Prudential Jennison and Prudential Muni
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Prudential and Prudential is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Jennison Small and Prudential Muni High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Muni High and Prudential Jennison 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 Jennison Small are associated (or correlated) with Prudential Muni. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Muni High has no effect on the direction of Prudential Jennison i.e., Prudential Jennison and Prudential Muni go up and down completely randomly.
Pair Corralation between Prudential Jennison and Prudential Muni
Assuming the 90 days horizon Prudential Jennison Small is expected to generate 2.73 times more return on investment than Prudential Muni. However, Prudential Jennison is 2.73 times more volatile than Prudential Muni High. It trades about 0.15 of its potential returns per unit of risk. Prudential Muni High is currently generating about 0.02 per unit of risk. If you would invest 2,101 in Prudential Jennison Small on October 21, 2024 and sell it today you would earn a total of 47.00 from holding Prudential Jennison Small or generate 2.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Prudential Jennison Small vs. Prudential Muni High
Performance |
| Timeline |
| Prudential Jennison Small |
| Prudential Muni High |
Prudential Jennison and Prudential Muni Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prudential Jennison and Prudential Muni
The main advantage of trading using opposite Prudential Jennison and Prudential Muni positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Jennison position performs unexpectedly, Prudential Muni 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 Muni will offset losses from the drop in Prudential Muni's long position.The idea behind Prudential Jennison Small and Prudential Muni High 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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