Correlation Between Prudential Jennison and Energy Basic

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

By analyzing existing cross correlation between Prudential Jennison Growth and Energy Basic Materials, you can compare the effects of market volatilities on Prudential Jennison and Energy Basic 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 Jennison with a short position of Energy Basic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Jennison and Energy Basic.

Diversification Opportunities for Prudential Jennison and Energy Basic

0.52

Correlation Coefficient

Prudential Jennison  Energy Basic

Very weak diversification

The 3 months correlation between Prudential and Energy is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Jennison Growth and Energy Basic Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Basic Materials and Prudential Jennison 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 Jennison Growth are associated (or correlated) with Energy Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Basic Materials has no effect on the direction of Prudential Jennison i.e., Prudential Jennison and Energy Basic go up and down completely randomly.

Pair Corralation between Prudential Jennison and Energy Basic

Assuming the 90 days horizon Prudential Jennison Growth is expected to generate 1.38 times more return on investment than Energy Basic. However, Prudential Jennison is 1.38 times more volatile than Energy Basic Materials. It trades about 0.06 of its potential returns per unit of risk. Energy Basic Materials is currently generating about -0.02 per unit of risk. If you would invest  5,611  in Prudential Jennison Growth on October 5, 2024 and sell it today you would earn a total of  1,409  from holding Prudential Jennison Growth or generate 25.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.68%
Values	Daily Returns

Prudential Jennison Growth  vs.  Energy Basic Materials

Prudential Jennison

Risk-Adjusted Performance

0 of 100

Very Weak

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

Energy Basic Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy Basic Materials 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 fundamental drivers 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.

Pair Trading with Prudential Jennison and Energy Basic

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

The idea behind Prudential Jennison Growth and Energy Basic Materials 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.