Correlation Between Inflation-protected and Prudential Jennison

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

By analyzing existing cross correlation between Inflation Protected Bond Fund and Prudential Jennison Growth, you can compare the effects of market volatilities on Inflation-protected 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 Inflation-protected with a short position of Prudential Jennison. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inflation-protected and Prudential Jennison.

Diversification Opportunities for Inflation-protected and Prudential Jennison

0.31

Correlation Coefficient

Inflation-protected  Prudential Jennison

Weak diversification

The 3 months correlation between Inflation-protected and Prudential is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Inflation Protected Bond Fund and Prudential Jennison Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Jennison and Inflation-protected 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 Inflation Protected Bond Fund 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 Inflation-protected i.e., Inflation-protected and Prudential Jennison go up and down completely randomly.

Pair Corralation between Inflation-protected and Prudential Jennison

Assuming the 90 days horizon Inflation-protected is expected to generate 3.57 times less return on investment than Prudential Jennison. But when comparing it to its historical volatility, Inflation Protected Bond Fund is 3.24 times less risky than Prudential Jennison. It trades about 0.05 of its potential returns per unit of risk. Prudential Jennison Growth is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,625  in Prudential Jennison Growth on October 11, 2024 and sell it today you would earn a total of  1,026  from holding Prudential Jennison Growth or generate 39.09% return on investment over 90 days.

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

Inflation Protected Bond Fund  vs.  Prudential Jennison Growth

Inflation Protected

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Inflation-protected and Prudential Jennison

The main advantage of trading using opposite Inflation-protected and Prudential Jennison positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inflation-protected 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 Inflation Protected Bond Fund and Prudential Jennison Growth 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 Anywhere module to track or share privately all of your investments from the convenience of any device.