Correlation Between Guidepath Tactical and Prudential Real

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

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

Diversification Opportunities for Guidepath Tactical and Prudential Real

0.28

Correlation Coefficient

Guidepath Tactical  Prudential Real

Modest diversification

The 3 months correlation between Guidepath and Prudential is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Guidepath Tactical Allocation and Prudential Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Real Estate and Guidepath Tactical 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 Guidepath Tactical Allocation are associated (or correlated) with Prudential Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Real Estate has no effect on the direction of Guidepath Tactical i.e., Guidepath Tactical and Prudential Real go up and down completely randomly.

Pair Corralation between Guidepath Tactical and Prudential Real

Assuming the 90 days horizon Guidepath Tactical Allocation is expected to under-perform the Prudential Real. In addition to that, Guidepath Tactical is 1.17 times more volatile than Prudential Real Estate. It trades about -0.14 of its total potential returns per unit of risk. Prudential Real Estate is currently generating about -0.03 per unit of volatility. If you would invest  1,542  in Prudential Real Estate on December 24, 2024 and sell it today you would lose (31.00) from holding Prudential Real Estate or give up 2.01% of portfolio value over 90 days.

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

Guidepath Tactical Allocation  vs.  Prudential Real Estate

Guidepath Tactical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guidepath Tactical Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Prudential Real Estate

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Guidepath Tactical and Prudential Real

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

The idea behind Guidepath Tactical Allocation and Prudential Real Estate 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.