Correlation Between Prudential Health and Old Westbury
Can any of the company-specific risk be diversified away by investing in both Prudential Health and Old Westbury 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 Health and Old Westbury into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prudential Health Sciences and Old Westbury Fixed, you can compare the effects of market volatilities on Prudential Health and Old Westbury 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 Health with a short position of Old Westbury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Health and Old Westbury.
Diversification Opportunities for Prudential Health and Old Westbury
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Prudential and Old is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Health Sciences and Old Westbury Fixed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Westbury Fixed and Prudential Health 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 Health Sciences are associated (or correlated) with Old Westbury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Westbury Fixed has no effect on the direction of Prudential Health i.e., Prudential Health and Old Westbury go up and down completely randomly.
Pair Corralation between Prudential Health and Old Westbury
Assuming the 90 days horizon Prudential Health Sciences is expected to under-perform the Old Westbury. In addition to that, Prudential Health is 3.94 times more volatile than Old Westbury Fixed. It trades about -0.08 of its total potential returns per unit of risk. Old Westbury Fixed is currently generating about -0.04 per unit of volatility. If you would invest 1,024 in Old Westbury Fixed on September 2, 2024 and sell it today you would lose (6.00) from holding Old Westbury Fixed or give up 0.59% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Prudential Health Sciences vs. Old Westbury Fixed
Performance |
| Timeline |
| Prudential Health |
| Old Westbury Fixed |
Prudential Health and Old Westbury Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prudential Health and Old Westbury
The main advantage of trading using opposite Prudential Health and Old Westbury positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Health position performs unexpectedly, Old Westbury 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 Old Westbury will offset losses from the drop in Old Westbury's long position.The idea behind Prudential Health Sciences and Old Westbury Fixed 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.
| Old Westbury vs. Old Westbury All | Old Westbury vs. Old Westbury California | Old Westbury vs. Old Westbury Credit | Old Westbury vs. Old Westbury Large |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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