Correlation Between Prudential Government and Mainstay Balanced

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

By analyzing existing cross correlation between Prudential Government Income and Mainstay Balanced Fund, you can compare the effects of market volatilities on Prudential Government and Mainstay Balanced 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 Prudential Government with a short position of Mainstay Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Government and Mainstay Balanced.

Diversification Opportunities for Prudential Government and Mainstay Balanced

-0.44

Correlation Coefficient

Prudential Government  Mainstay Balanced

Very good diversification

The 3 months correlation between Prudential and Mainstay is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Government Income and Mainstay Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mainstay Balanced and Prudential Government 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 Prudential Government Income are associated (or correlated) with Mainstay Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mainstay Balanced has no effect on the direction of Prudential Government i.e., Prudential Government and Mainstay Balanced go up and down completely randomly.

Pair Corralation between Prudential Government and Mainstay Balanced

Assuming the 90 days horizon Prudential Government is expected to generate 1.38 times less return on investment than Mainstay Balanced. But when comparing it to its historical volatility, Prudential Government Income is 1.28 times less risky than Mainstay Balanced. It trades about 0.06 of its potential returns per unit of risk. Mainstay Balanced Fund is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,789  in Mainstay Balanced Fund on September 12, 2024 and sell it today you would earn a total of  318.00  from holding Mainstay Balanced Fund or generate 11.4% return on investment over 90 days.

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

Prudential Government Income  vs.  Mainstay Balanced Fund

Prudential Government

Risk-Adjusted Performance

0 of 100

Very Weak

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

Mainstay Balanced

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Prudential Government and Mainstay Balanced

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

The idea behind Prudential Government Income and Mainstay Balanced Fund 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.