Correlation Between Prudential Health and Abbey Capital

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

By analyzing existing cross correlation between Prudential Health Sciences and Abbey Capital Futures, you can compare the effects of market volatilities on Prudential Health and Abbey Capital 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 Health with a short position of Abbey Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Health and Abbey Capital.

Diversification Opportunities for Prudential Health and Abbey Capital

0.32

Correlation Coefficient

Prudential Health  Abbey Capital

Weak diversification

The 3 months correlation between Prudential and Abbey is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Health Sciences and Abbey Capital Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbey Capital Futures and Prudential Health 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 Health Sciences are associated (or correlated) with Abbey Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abbey Capital Futures has no effect on the direction of Prudential Health i.e., Prudential Health and Abbey Capital go up and down completely randomly.

Pair Corralation between Prudential Health and Abbey Capital

Assuming the 90 days horizon Prudential Health Sciences is expected to generate 2.32 times more return on investment than Abbey Capital. However, Prudential Health is 2.32 times more volatile than Abbey Capital Futures. It trades about -0.02 of its potential returns per unit of risk. Abbey Capital Futures is currently generating about -0.05 per unit of risk. If you would invest  3,397  in Prudential Health Sciences on December 30, 2024 and sell it today you would lose (55.00) from holding Prudential Health Sciences or give up 1.62% of portfolio value over 90 days.

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

Prudential Health Sciences  vs.  Abbey Capital Futures

Prudential Health

Risk-Adjusted Performance

Very Weak

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

Abbey Capital Futures

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Prudential Health and Abbey Capital

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

The idea behind Prudential Health Sciences and Abbey Capital Futures 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.