Correlation Between Fidelity California and Prudential Global

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

By analyzing existing cross correlation between Fidelity California Municipal and Prudential Global Real, you can compare the effects of market volatilities on Fidelity California and Prudential Global 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 Fidelity California with a short position of Prudential Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity California and Prudential Global.

Diversification Opportunities for Fidelity California and Prudential Global

0.69

Correlation Coefficient

Fidelity California  Prudential Global

Poor diversification

The 3 months correlation between Fidelity and Prudential is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity California Municipal and Prudential Global Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Global Real and Fidelity California 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 Fidelity California Municipal are associated (or correlated) with Prudential Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Global Real has no effect on the direction of Fidelity California i.e., Fidelity California and Prudential Global go up and down completely randomly.

Pair Corralation between Fidelity California and Prudential Global

Assuming the 90 days horizon Fidelity California Municipal is expected to generate 0.26 times more return on investment than Prudential Global. However, Fidelity California Municipal is 3.84 times less risky than Prudential Global. It trades about 0.04 of its potential returns per unit of risk. Prudential Global Real is currently generating about -0.01 per unit of risk. If you would invest  1,207  in Fidelity California Municipal on December 24, 2024 and sell it today you would earn a total of  7.00  from holding Fidelity California Municipal or generate 0.58% return on investment over 90 days.

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

Fidelity California Municipal  vs.  Prudential Global Real

Fidelity California

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity California Municipal are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Fidelity California is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Prudential Global Real

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Fidelity California and Prudential Global

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

The idea behind Fidelity California Municipal and Prudential Global Real 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.