Correlation Between International Equity and Prudential Core
Can any of the company-specific risk be diversified away by investing in both International Equity and Prudential Core 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 International Equity and Prudential Core into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Equity Portfolio and Prudential Core Conservative, you can compare the effects of market volatilities on International Equity and Prudential Core 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 International Equity with a short position of Prudential Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Prudential Core.
Diversification Opportunities for International Equity and Prudential Core
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between International and Prudential is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Portfolio and Prudential Core Conservative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Core Cons and International Equity 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 International Equity Portfolio are associated (or correlated) with Prudential Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Core Cons has no effect on the direction of International Equity i.e., International Equity and Prudential Core go up and down completely randomly.
Pair Corralation between International Equity and Prudential Core
Assuming the 90 days horizon International Equity Portfolio is expected to generate 2.05 times more return on investment than Prudential Core. However, International Equity is 2.05 times more volatile than Prudential Core Conservative. It trades about 0.05 of its potential returns per unit of risk. Prudential Core Conservative is currently generating about 0.07 per unit of risk. If you would invest 1,030 in International Equity Portfolio on September 12, 2024 and sell it today you would earn a total of 134.00 from holding International Equity Portfolio or generate 13.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Equity Portfolio vs. Prudential Core Conservative
Performance |
| Timeline |
| International Equity |
| Prudential Core Cons |
International Equity and Prudential Core Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Equity and Prudential Core
The main advantage of trading using opposite International Equity and Prudential Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity position performs unexpectedly, Prudential Core 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 Core will offset losses from the drop in Prudential Core's long position.The idea behind International Equity Portfolio and Prudential Core Conservative 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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