Correlation Between Extended Market and Prudential Health
Can any of the company-specific risk be diversified away by investing in both Extended Market and Prudential Health 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 Extended Market and Prudential Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Extended Market Index and Prudential Health Sciences, you can compare the effects of market volatilities on Extended Market and Prudential Health 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 Extended Market with a short position of Prudential Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Extended Market and Prudential Health.
Diversification Opportunities for Extended Market and Prudential Health
-0.48 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Extended and Prudential is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Extended Market Index and Prudential Health Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Health and Extended Market 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 Extended Market Index are associated (or correlated) with Prudential Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Health has no effect on the direction of Extended Market i.e., Extended Market and Prudential Health go up and down completely randomly.
Pair Corralation between Extended Market and Prudential Health
Assuming the 90 days horizon Extended Market Index is expected to generate 0.75 times more return on investment than Prudential Health. However, Extended Market Index is 1.33 times less risky than Prudential Health. It trades about 0.05 of its potential returns per unit of risk. Prudential Health Sciences is currently generating about -0.05 per unit of risk. If you would invest 2,458 in Extended Market Index on September 13, 2024 and sell it today you would earn a total of 22.00 from holding Extended Market Index or generate 0.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Extended Market Index vs. Prudential Health Sciences
Performance |
| Timeline |
| Extended Market Index |
| Prudential Health |
Extended Market and Prudential Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Extended Market and Prudential Health
The main advantage of trading using opposite Extended Market and Prudential Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Extended Market position performs unexpectedly, Prudential Health 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 Health will offset losses from the drop in Prudential Health's long position.| Extended Market vs. Multimedia Portfolio Multimedia | Extended Market vs. Artisan Select Equity | Extended Market vs. Touchstone International Equity | Extended Market vs. Qs Global Equity |
| Prudential Health vs. Ab Global Risk | Prudential Health vs. Calvert High Yield | Prudential Health vs. Artisan High Income | Prudential Health vs. Ab Global Risk |
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 Directory module to find actively traded commodities issued by global exchanges.
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