Correlation Between NYSE Composite and Prudential 60/40

Can any of the company-specific risk be diversified away by investing in both NYSE Composite 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 NYSE Composite 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 NYSE Composite and Prudential 6040 Allocation, you can compare the effects of market volatilities on NYSE Composite 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 NYSE Composite with a short position of Prudential 60/40. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Prudential 60/40.

Diversification Opportunities for NYSE Composite and Prudential 60/40

0.97

Correlation Coefficient

NYSE Composite  Prudential 60/40

Almost no diversification

The 3 months correlation between NYSE and PRUDENTIAL is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite 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 NYSE Composite 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 NYSE Composite 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 NYSE Composite i.e., NYSE Composite and Prudential 60/40 go up and down completely randomly.

Pair Corralation between NYSE Composite and Prudential 60/40

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.35 times more return on investment than Prudential 60/40. However, NYSE Composite is 1.35 times more volatile than Prudential 6040 Allocation. It trades about 0.18 of its potential returns per unit of risk. Prudential 6040 Allocation is currently generating about 0.19 per unit of risk. If you would invest  1,887,802  in NYSE Composite on September 5, 2024 and sell it today you would earn a total of  130,779  from holding NYSE Composite or generate 6.93% return on investment over 90 days.

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

NYSE Composite  vs.  Prudential 6040 Allocation

Pair Trading with NYSE Composite and Prudential 60/40

The main advantage of trading using opposite NYSE Composite and Prudential 60/40 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite 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 NYSE Composite 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.