Correlation Between Prudential Short and Prudential 60/40

Can any of the company-specific risk be diversified away by investing in both Prudential Short and Prudential 60/40 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 Prudential Short and Prudential 60/40 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Prudential Short Duration and Prudential 6040 Allocation, you can compare the effects of market volatilities on Prudential Short and Prudential 60/40 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 Prudential Short with a short position of Prudential 60/40. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Short and Prudential 60/40.

Diversification Opportunities for Prudential Short and Prudential 60/40

0.52

Correlation Coefficient

Prudential Short  Prudential 60/40

Very weak diversification

The 3 months correlation between Prudential and Prudential is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Short Duration and Prudential 6040 Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential 6040 Allo and Prudential Short 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 Prudential Short Duration are associated (or correlated) with Prudential 60/40. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential 6040 Allo has no effect on the direction of Prudential Short i.e., Prudential Short and Prudential 60/40 go up and down completely randomly.

Pair Corralation between Prudential Short and Prudential 60/40

Assuming the 90 days horizon Prudential Short is expected to generate 1.17 times less return on investment than Prudential 60/40. But when comparing it to its historical volatility, Prudential Short Duration is 3.73 times less risky than Prudential 60/40. It trades about 0.16 of its potential returns per unit of risk. Prudential 6040 Allocation is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,217  in Prudential 6040 Allocation on October 7, 2024 and sell it today you would earn a total of  97.00  from holding Prudential 6040 Allocation or generate 7.97% return on investment over 90 days.

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

Prudential Short Duration  vs.  Prudential 6040 Allocation

Prudential Short Duration

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Short Duration are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Prudential Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Prudential 6040 Allo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential 6040 Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Prudential 60/40 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Prudential Short and Prudential 60/40

The main advantage of trading using opposite Prudential Short and Prudential 60/40 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Short position performs unexpectedly, Prudential 60/40 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 60/40 will offset losses from the drop in Prudential 60/40's long position.

The idea behind Prudential Short Duration and Prudential 6040 Allocation 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.