Correlation Between Prudential Muni and Prudential Day
Can any of the company-specific risk be diversified away by investing in both Prudential Muni and Prudential Day 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 Muni and Prudential Day into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prudential Muni High and Prudential Day One, you can compare the effects of market volatilities on Prudential Muni and Prudential Day 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 Muni with a short position of Prudential Day. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Muni and Prudential Day.
Diversification Opportunities for Prudential Muni and Prudential Day
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Prudential and Prudential is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Muni High and Prudential Day One in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Day One and Prudential Muni 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 Muni High are associated (or correlated) with Prudential Day. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Day One has no effect on the direction of Prudential Muni i.e., Prudential Muni and Prudential Day go up and down completely randomly.
Pair Corralation between Prudential Muni and Prudential Day
Assuming the 90 days horizon Prudential Muni is expected to generate 1.09 times less return on investment than Prudential Day. In addition to that, Prudential Muni is 1.25 times more volatile than Prudential Day One. It trades about 0.23 of its total potential returns per unit of risk. Prudential Day One is currently generating about 0.31 per unit of volatility. If you would invest 1,074 in Prudential Day One on September 1, 2024 and sell it today you would earn a total of 21.00 from holding Prudential Day One or generate 1.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Prudential Muni High vs. Prudential Day One
Performance |
| Timeline |
| Prudential Muni High |
| Prudential Day One |
Prudential Muni and Prudential Day Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prudential Muni and Prudential Day
The main advantage of trading using opposite Prudential Muni and Prudential Day positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Muni position performs unexpectedly, Prudential Day 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 Day will offset losses from the drop in Prudential Day's long position.The idea behind Prudential Muni High and Prudential Day One 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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