Correlation Between American Funds and Prudential Day

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

By analyzing existing cross correlation between American Funds 2045 and Prudential Day One, you can compare the effects of market volatilities on American Funds and Prudential Day 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 American Funds with a short position of Prudential Day. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Prudential Day.

Diversification Opportunities for American Funds and Prudential Day

0.67

Correlation Coefficient

American Funds  Prudential Day

Poor diversification

The 3 months correlation between American and Prudential is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2045 and Prudential Day One in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Day One and American Funds 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 American Funds 2045 are associated (or correlated) with Prudential Day. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Day One has no effect on the direction of American Funds i.e., American Funds and Prudential Day go up and down completely randomly.

Pair Corralation between American Funds and Prudential Day

Assuming the 90 days horizon American Funds 2045 is expected to generate 0.76 times more return on investment than Prudential Day. However, American Funds 2045 is 1.31 times less risky than Prudential Day. It trades about 0.09 of its potential returns per unit of risk. Prudential Day One is currently generating about 0.02 per unit of risk. If you would invest  1,587  in American Funds 2045 on October 9, 2024 and sell it today you would earn a total of  529.00  from holding American Funds 2045 or generate 33.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

American Funds 2045  vs.  Prudential Day One

American Funds 2045

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Funds 2045 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Prudential Day One

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Day One 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 forward-looking 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 American Funds and Prudential Day

The main advantage of trading using opposite American Funds and Prudential Day positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Prudential Day 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 Day will offset losses from the drop in Prudential Day's long position.

The idea behind American Funds 2045 and Prudential Day One 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.