Correlation Between Prudential Balanced and Prudential Jennison
Can any of the company-specific risk be diversified away by investing in both Prudential Balanced 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 Balanced 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 Balanced and Prudential Jennison Small, you can compare the effects of market volatilities on Prudential Balanced 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 Balanced with a short position of Prudential Jennison. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Balanced and Prudential Jennison.
Diversification Opportunities for Prudential Balanced and Prudential Jennison
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Prudential and Prudential is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Balanced and Prudential Jennison Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Jennison Small and Prudential Balanced 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 Balanced 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 Small has no effect on the direction of Prudential Balanced i.e., Prudential Balanced and Prudential Jennison go up and down completely randomly.
Pair Corralation between Prudential Balanced and Prudential Jennison
Assuming the 90 days horizon Prudential Balanced is expected to generate 5.31 times less return on investment than Prudential Jennison. But when comparing it to its historical volatility, Prudential Balanced is 2.13 times less risky than Prudential Jennison. It trades about 0.07 of its potential returns per unit of risk. Prudential Jennison Small is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 2,398 in Prudential Jennison Small on August 28, 2024 and sell it today you would earn a total of 261.00 from holding Prudential Jennison Small or generate 10.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Prudential Balanced vs. Prudential Jennison Small
Performance |
| Timeline |
| Prudential Balanced |
| Prudential Jennison Small |
Prudential Balanced and Prudential Jennison Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prudential Balanced and Prudential Jennison
The main advantage of trading using opposite Prudential Balanced and Prudential Jennison positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Balanced 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 Balanced and Prudential Jennison Small 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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