Correlation Between Prudential Health and Metropolitan West

Can any of the company-specific risk be diversified away by investing in both Prudential Health and Metropolitan West 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 Metropolitan West 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 Metropolitan West Strategic, you can compare the effects of market volatilities on Prudential Health and Metropolitan West 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 Metropolitan West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Health and Metropolitan West.

Diversification Opportunities for Prudential Health and Metropolitan West

0.19

Correlation Coefficient

Prudential Health  Metropolitan West

Average diversification

The 3 months correlation between Prudential and Metropolitan is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Health Sciences and Metropolitan West Strategic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan West 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 Metropolitan West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metropolitan West has no effect on the direction of Prudential Health i.e., Prudential Health and Metropolitan West go up and down completely randomly.

Pair Corralation between Prudential Health and Metropolitan West

Assuming the 90 days horizon Prudential Health Sciences is expected to under-perform the Metropolitan West. In addition to that, Prudential Health is 5.22 times more volatile than Metropolitan West Strategic. It trades about -0.02 of its total potential returns per unit of risk. Metropolitan West Strategic is currently generating about 0.1 per unit of volatility. If you would invest  579.00  in Metropolitan West Strategic on October 7, 2024 and sell it today you would earn a total of  34.00  from holding Metropolitan West Strategic or generate 5.87% return on investment over 90 days.

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

Prudential Health Sciences  vs.  Metropolitan West Strategic

Prudential Health

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Metropolitan West

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metropolitan West Strategic has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Metropolitan West 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 Health and Metropolitan West

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

The idea behind Prudential Health Sciences and Metropolitan West Strategic 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.