Correlation Between Free Market and Prudential Jennison

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

By analyzing existing cross correlation between Free Market International and Prudential Jennison International, you can compare the effects of market volatilities on Free Market and Prudential Jennison 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 Free Market with a short position of Prudential Jennison. Check out your portfolio center. Please also check ongoing floating volatility patterns of Free Market and Prudential Jennison.

Diversification Opportunities for Free Market and Prudential Jennison

0.86

Correlation Coefficient

Free Market  Prudential Jennison

Very poor diversification

The 3 months correlation between Free and Prudential is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Free Market International and Prudential Jennison Internatio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Jennison and Free 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 Free Market International are associated (or correlated) with Prudential Jennison. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Jennison has no effect on the direction of Free Market i.e., Free Market and Prudential Jennison go up and down completely randomly.

Pair Corralation between Free Market and Prudential Jennison

Assuming the 90 days horizon Free Market is expected to generate 1.25 times less return on investment than Prudential Jennison. But when comparing it to its historical volatility, Free Market International is 1.28 times less risky than Prudential Jennison. It trades about 0.24 of its potential returns per unit of risk. Prudential Jennison International is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  3,064  in Prudential Jennison International on October 24, 2024 and sell it today you would earn a total of  118.00  from holding Prudential Jennison International or generate 3.85% return on investment over 90 days.

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

Free Market International  vs.  Prudential Jennison Internatio

Free Market International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Prudential Jennison

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Free Market and Prudential Jennison

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

The idea behind Free Market International and Prudential Jennison International 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.