Correlation Between PGIM Large and X Square

Can any of the company-specific risk be diversified away by investing in both PGIM Large and X Square 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 PGIM Large and X Square into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PGIM Large Cap Buffer and X Square Balanced, you can compare the effects of market volatilities on PGIM Large and X Square 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 PGIM Large with a short position of X Square. Check out your portfolio center. Please also check ongoing floating volatility patterns of PGIM Large and X Square.

Diversification Opportunities for PGIM Large and X Square

0.82

Correlation Coefficient

PGIM Large  X Square

Very poor diversification

The 3 months correlation between PGIM and SQCBX is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding PGIM Large Cap Buffer and X Square Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X Square Balanced and PGIM Large 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 PGIM Large Cap Buffer are associated (or correlated) with X Square. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X Square Balanced has no effect on the direction of PGIM Large i.e., PGIM Large and X Square go up and down completely randomly.

Pair Corralation between PGIM Large and X Square

Given the investment horizon of 90 days PGIM Large Cap Buffer is expected to generate 0.39 times more return on investment than X Square. However, PGIM Large Cap Buffer is 2.57 times less risky than X Square. It trades about 0.0 of its potential returns per unit of risk. X Square Balanced is currently generating about -0.24 per unit of risk. If you would invest  2,798  in PGIM Large Cap Buffer on September 29, 2024 and sell it today you would lose (1.00) from holding PGIM Large Cap Buffer or give up 0.04% of portfolio value over 90 days.

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

PGIM Large Cap Buffer  vs.  X Square Balanced

PGIM Large Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PGIM Large Cap Buffer are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, PGIM Large is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

X Square Balanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X Square Balanced has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, X Square is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with PGIM Large and X Square

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

The idea behind PGIM Large Cap Buffer and X Square Balanced 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.