Correlation Between Prudential High and Dimensional 2055

Can any of the company-specific risk be diversified away by investing in both Prudential High and Dimensional 2055 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 High and Dimensional 2055 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Prudential High Yield and Dimensional 2055 Target, you can compare the effects of market volatilities on Prudential High and Dimensional 2055 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 High with a short position of Dimensional 2055. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential High and Dimensional 2055.

Diversification Opportunities for Prudential High and Dimensional 2055

0.63

Correlation Coefficient

Prudential High  Dimensional 2055

Poor diversification

The 3 months correlation between Prudential and Dimensional is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Prudential High Yield and Dimensional 2055 Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional 2055 Target and Prudential High 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 High Yield are associated (or correlated) with Dimensional 2055. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional 2055 Target has no effect on the direction of Prudential High i.e., Prudential High and Dimensional 2055 go up and down completely randomly.

Pair Corralation between Prudential High and Dimensional 2055

Assuming the 90 days horizon Prudential High is expected to generate 8.32 times less return on investment than Dimensional 2055. But when comparing it to its historical volatility, Prudential High Yield is 3.7 times less risky than Dimensional 2055. It trades about 0.04 of its potential returns per unit of risk. Dimensional 2055 Target is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,937  in Dimensional 2055 Target on September 15, 2024 and sell it today you would earn a total of  67.00  from holding Dimensional 2055 Target or generate 3.46% return on investment over 90 days.

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

Prudential High Yield  vs.  Dimensional 2055 Target

Prudential High Yield

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential High Yield are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Prudential High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dimensional 2055 Target

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional 2055 Target are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, Dimensional 2055 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 High and Dimensional 2055

The main advantage of trading using opposite Prudential High and Dimensional 2055 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential High position performs unexpectedly, Dimensional 2055 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 Dimensional 2055 will offset losses from the drop in Dimensional 2055's long position.

The idea behind Prudential High Yield and Dimensional 2055 Target 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.