Correlation Between Prudential Health and Prudential Jennison
Can any of the company-specific risk be diversified away by investing in both Prudential Health 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 Prudential Health and Prudential Jennison 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 Prudential Jennison International, you can compare the effects of market volatilities on Prudential Health 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 Prudential Health with a short position of Prudential Jennison. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Health and Prudential Jennison.
Diversification Opportunities for Prudential Health and Prudential Jennison
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Prudential and Prudential is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Health Sciences and Prudential Jennison Internatio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Jennison 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 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 Prudential Health i.e., Prudential Health and Prudential Jennison go up and down completely randomly.
Pair Corralation between Prudential Health and Prudential Jennison
Assuming the 90 days horizon Prudential Health Sciences is expected to generate 1.67 times more return on investment than Prudential Jennison. However, Prudential Health is 1.67 times more volatile than Prudential Jennison International. It trades about -0.04 of its potential returns per unit of risk. Prudential Jennison International is currently generating about -0.18 per unit of risk. If you would invest 5,217 in Prudential Health Sciences on August 30, 2024 and sell it today you would lose (58.00) from holding Prudential Health Sciences or give up 1.11% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Prudential Health Sciences vs. Prudential Jennison Internatio
Performance |
| Timeline |
| Prudential Health |
| Prudential Jennison |
Prudential Health and Prudential Jennison Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prudential Health and Prudential Jennison
The main advantage of trading using opposite Prudential Health and Prudential Jennison positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Health 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 Prudential Health Sciences and Prudential Jennison International 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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