Correlation Between Prudential High and Gmo High
Can any of the company-specific risk be diversified away by investing in both Prudential High and Gmo High 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 High and Gmo High into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prudential High Yield and Gmo High Yield, you can compare the effects of market volatilities on Prudential High and Gmo High 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 High with a short position of Gmo High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential High and Gmo High.
Diversification Opportunities for Prudential High and Gmo High
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Prudential and Gmo is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Prudential High Yield and Gmo High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo High Yield and Prudential High 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 High Yield are associated (or correlated) with Gmo High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo High Yield has no effect on the direction of Prudential High i.e., Prudential High and Gmo High go up and down completely randomly.
Pair Corralation between Prudential High and Gmo High
Assuming the 90 days horizon Prudential High is expected to generate 2.17 times less return on investment than Gmo High. But when comparing it to its historical volatility, Prudential High Yield is 1.3 times less risky than Gmo High. It trades about 0.14 of its potential returns per unit of risk. Gmo High Yield is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 1,790 in Gmo High Yield on August 28, 2024 and sell it today you would earn a total of 17.00 from holding Gmo High Yield or generate 0.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Prudential High Yield vs. Gmo High Yield
Performance |
| Timeline |
| Prudential High Yield |
| Gmo High Yield |
Prudential High and Gmo High Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prudential High and Gmo High
The main advantage of trading using opposite Prudential High and Gmo High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential High position performs unexpectedly, Gmo High 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 Gmo High will offset losses from the drop in Gmo High's long position.The idea behind Prudential High Yield and Gmo High Yield 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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