Correlation Between Pace Municipal and Prudential Core

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

By analyzing existing cross correlation between Pace Municipal Fixed and Prudential Core Conservative, you can compare the effects of market volatilities on Pace Municipal and Prudential Core 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 Pace Municipal with a short position of Prudential Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pace Municipal and Prudential Core.

Diversification Opportunities for Pace Municipal and Prudential Core

0.8

Correlation Coefficient

Pace Municipal  Prudential Core

Very poor diversification

The 3 months correlation between Pace and Prudential is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Pace Municipal Fixed and Prudential Core Conservative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Core Cons and Pace Municipal 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 Pace Municipal Fixed are associated (or correlated) with Prudential Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Core Cons has no effect on the direction of Pace Municipal i.e., Pace Municipal and Prudential Core go up and down completely randomly.

Pair Corralation between Pace Municipal and Prudential Core

Assuming the 90 days horizon Pace Municipal is expected to generate 1.06 times less return on investment than Prudential Core. But when comparing it to its historical volatility, Pace Municipal Fixed is 2.33 times less risky than Prudential Core. It trades about 0.06 of its potential returns per unit of risk. Prudential Core Conservative is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  806.00  in Prudential Core Conservative on September 26, 2024 and sell it today you would earn a total of  41.00  from holding Prudential Core Conservative or generate 5.09% return on investment over 90 days.

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

Pace Municipal Fixed  vs.  Prudential Core Conservative

Pace Municipal Fixed

Risk-Adjusted Performance

0 of 100

Very Weak

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

Prudential Core Cons

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Pace Municipal and Prudential Core

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

The idea behind Pace Municipal Fixed and Prudential Core Conservative 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.