Correlation Between Prudential Health and Baron Small

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

Diversification Opportunities for Prudential Health and Baron Small

0.81

Correlation Coefficient

Prudential Health  Baron Small

Very poor diversification

The 3 months correlation between Prudential and Baron is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Health Sciences and Baron Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Small Cap 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 Baron Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Small Cap has no effect on the direction of Prudential Health i.e., Prudential Health and Baron Small go up and down completely randomly.

Pair Corralation between Prudential Health and Baron Small

Assuming the 90 days horizon Prudential Health Sciences is expected to generate 1.11 times more return on investment than Baron Small. However, Prudential Health is 1.11 times more volatile than Baron Small Cap. It trades about -0.25 of its potential returns per unit of risk. Baron Small Cap is currently generating about -0.28 per unit of risk. If you would invest  3,795  in Prudential Health Sciences on October 12, 2024 and sell it today you would lose (587.00) from holding Prudential Health Sciences or give up 15.47% of portfolio value over 90 days.

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

Prudential Health Sciences  vs.  Baron Small Cap

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.

Baron Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baron Small Cap 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 forward 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.

Pair Trading with Prudential Health and Baron Small

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

The idea behind Prudential Health Sciences and Baron Small Cap 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.