Correlation Between Financial Industries and Prudential Jennison

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

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

Diversification Opportunities for Financial Industries and Prudential Jennison

0.95

Correlation Coefficient

Financial Industries  Prudential Jennison

Almost no diversification

The 3 months correlation between Financial and Prudential is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Financial Industries Fund and Prudential Jennison Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Jennison and Financial Industries 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 Financial Industries 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 Financial Industries i.e., Financial Industries and Prudential Jennison go up and down completely randomly.

Pair Corralation between Financial Industries and Prudential Jennison

Assuming the 90 days horizon Financial Industries is expected to generate 1.75 times less return on investment than Prudential Jennison. In addition to that, Financial Industries is 1.09 times more volatile than Prudential Jennison Financial. It trades about 0.04 of its total potential returns per unit of risk. Prudential Jennison Financial is currently generating about 0.07 per unit of volatility. If you would invest  1,701  in Prudential Jennison Financial on October 5, 2024 and sell it today you would earn a total of  699.00  from holding Prudential Jennison Financial or generate 41.09% return on investment over 90 days.

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

Financial Industries Fund  vs.  Prudential Jennison Financial

Financial Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Financial Industries Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Financial Industries 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 Financial 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 current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Financial Industries and Prudential Jennison

The main advantage of trading using opposite Financial Industries and Prudential Jennison positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Industries 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 Financial Industries Fund and Prudential Jennison Financial 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.