Correlation Between Prime Dividend and Premium Income

Can any of the company-specific risk be diversified away by investing in both Prime Dividend and Premium Income 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 Prime Dividend and Premium Income into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Prime Dividend Corp and Premium Income, you can compare the effects of market volatilities on Prime Dividend and Premium Income 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 Prime Dividend with a short position of Premium Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prime Dividend and Premium Income.

Diversification Opportunities for Prime Dividend and Premium Income

0.59

Correlation Coefficient

Prime Dividend  Premium Income

Very weak diversification

The 3 months correlation between Prime and Premium is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Prime Dividend Corp and Premium Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premium Income and Prime Dividend 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 Prime Dividend Corp are associated (or correlated) with Premium Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premium Income has no effect on the direction of Prime Dividend i.e., Prime Dividend and Premium Income go up and down completely randomly.

Pair Corralation between Prime Dividend and Premium Income

Assuming the 90 days trading horizon Prime Dividend Corp is expected to generate 1.4 times more return on investment than Premium Income. However, Prime Dividend is 1.4 times more volatile than Premium Income. It trades about -0.02 of its potential returns per unit of risk. Premium Income is currently generating about -0.19 per unit of risk. If you would invest  838.00  in Prime Dividend Corp on December 30, 2024 and sell it today you would lose (23.00) from holding Prime Dividend Corp or give up 2.74% of portfolio value over 90 days.

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

Prime Dividend Corp  vs.  Premium Income

Prime Dividend Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prime Dividend Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Prime Dividend is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Premium Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days Premium Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Prime Dividend and Premium Income

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

The idea behind Prime Dividend Corp and Premium Income 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.