Correlation Between Near Term and Prudential Short

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

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

Diversification Opportunities for Near Term and Prudential Short

0.45

Correlation Coefficient

Near Term  Prudential Short

Very weak diversification

The 3 months correlation between Near and Prudential is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Near Term Tax Free and Prudential Short Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Short Duration and Near Term 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 Near Term Tax Free are associated (or correlated) with Prudential Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Short Duration has no effect on the direction of Near Term i.e., Near Term and Prudential Short go up and down completely randomly.

Pair Corralation between Near Term and Prudential Short

Assuming the 90 days horizon Near Term is expected to generate 75.0 times less return on investment than Prudential Short. But when comparing it to its historical volatility, Near Term Tax Free is 1.02 times less risky than Prudential Short. It trades about 0.0 of its potential returns per unit of risk. Prudential Short Duration is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  842.00  in Prudential Short Duration on September 15, 2024 and sell it today you would earn a total of  4.00  from holding Prudential Short Duration or generate 0.48% return on investment over 90 days.

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

Near Term Tax Free  vs.  Prudential Short Duration

Near Term Tax

Risk-Adjusted Performance

0 of 100

Very Weak

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

Prudential Short Duration

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Short Duration are ranked lower than 4 (%) 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.

Pair Trading with Near Term and Prudential Short

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

The idea behind Near Term Tax Free and Prudential Short Duration 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.