Correlation Between PGIM Large and First Trust

Can any of the company-specific risk be diversified away by investing in both PGIM Large and First Trust 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 First Trust 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 First Trust Cboe, you can compare the effects of market volatilities on PGIM Large and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of PGIM Large and First Trust.

Diversification Opportunities for PGIM Large and First Trust

0.99

Correlation Coefficient

PGIM Large  First Trust

No risk reduction

The 3 months correlation between PGIM and First is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding PGIM Large Cap Buffer and First Trust Cboe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Cboe 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Cboe has no effect on the direction of PGIM Large i.e., PGIM Large and First Trust go up and down completely randomly.

Pair Corralation between PGIM Large and First Trust

Given the investment horizon of 90 days PGIM Large is expected to generate 1.36 times less return on investment than First Trust. But when comparing it to its historical volatility, PGIM Large Cap Buffer is 1.08 times less risky than First Trust. It trades about 0.18 of its potential returns per unit of risk. First Trust Cboe is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  2,956  in First Trust Cboe on September 13, 2024 and sell it today you would earn a total of  123.00  from holding First Trust Cboe or generate 4.16% return on investment over 90 days.

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

PGIM Large Cap Buffer  vs.  First Trust Cboe

PGIM Large Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PGIM Large Cap Buffer are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, PGIM Large is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

First Trust Cboe

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust Cboe are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, First Trust is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with PGIM Large and First Trust

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

The idea behind PGIM Large Cap Buffer and First Trust Cboe 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.