Correlation Between California Bond and Prudential Real
Can any of the company-specific risk be diversified away by investing in both California Bond and Prudential Real 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 California Bond and Prudential Real into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between California Bond Fund and Prudential Real Estate, you can compare the effects of market volatilities on California Bond and Prudential Real 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 California Bond with a short position of Prudential Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Bond and Prudential Real.
Diversification Opportunities for California Bond and Prudential Real
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between California and Prudential is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding California Bond Fund and Prudential Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Real Estate and California Bond 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 California Bond Fund are associated (or correlated) with Prudential Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Real Estate has no effect on the direction of California Bond i.e., California Bond and Prudential Real go up and down completely randomly.
Pair Corralation between California Bond and Prudential Real
Assuming the 90 days horizon California Bond is expected to generate 7.15 times less return on investment than Prudential Real. But when comparing it to its historical volatility, California Bond Fund is 3.16 times less risky than Prudential Real. It trades about 0.1 of its potential returns per unit of risk. Prudential Real Estate is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 652.00 in Prudential Real Estate on September 3, 2024 and sell it today you would earn a total of 166.00 from holding Prudential Real Estate or generate 25.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
California Bond Fund vs. Prudential Real Estate
Performance |
| Timeline |
| California Bond |
| Prudential Real Estate |
California Bond and Prudential Real Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with California Bond and Prudential Real
The main advantage of trading using opposite California Bond and Prudential Real positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California Bond position performs unexpectedly, Prudential Real 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 Real will offset losses from the drop in Prudential Real's long position.| California Bond vs. Franklin California Tax Free | California Bond vs. Franklin California Tax Free | California Bond vs. Franklin California Tax Free | California Bond vs. Franklin California Tax Free |
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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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