Correlation Between Capital Income and Prudential Health

Can any of the company-specific risk be diversified away by investing in both Capital Income 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 Capital Income and Prudential Health into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Capital Income Builder and Prudential Health Sciences, you can compare the effects of market volatilities on Capital Income 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 Capital Income with a short position of Prudential Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Income and Prudential Health.

Diversification Opportunities for Capital Income and Prudential Health

0.88

Correlation Coefficient

Capital Income  Prudential Health

Very poor diversification

The 3 months correlation between Capital and Prudential is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and Prudential Health Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Health and Capital Income 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 Capital Income Builder 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 Capital Income i.e., Capital Income and Prudential Health go up and down completely randomly.

Pair Corralation between Capital Income and Prudential Health

Assuming the 90 days horizon Capital Income Builder is expected to generate 0.47 times more return on investment than Prudential Health. However, Capital Income Builder is 2.11 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 0.01 per unit of risk. If you would invest  6,181  in Capital Income Builder on October 10, 2024 and sell it today you would earn a total of  760.00  from holding Capital Income Builder or generate 12.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Capital Income Builder  vs.  Prudential Health Sciences

Capital Income Builder

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital Income Builder has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Capital Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Prudential Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Health Sciences has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Capital Income and Prudential Health

The main advantage of trading using opposite Capital Income and Prudential Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Income 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.

The idea behind Capital Income Builder and Prudential Health Sciences 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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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.