Correlation Between Prudential Health and Eafe Pure

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

Diversification Opportunities for Prudential Health and Eafe Pure

0.75

Correlation Coefficient

Prudential Health  Eafe Pure

Poor diversification

The 3 months correlation between Prudential and Eafe is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Health Sciences and The Eafe Pure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eafe Pure 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 Eafe Pure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eafe Pure has no effect on the direction of Prudential Health i.e., Prudential Health and Eafe Pure go up and down completely randomly.

Pair Corralation between Prudential Health and Eafe Pure

Assuming the 90 days horizon Prudential Health Sciences is expected to under-perform the Eafe Pure. In addition to that, Prudential Health is 1.71 times more volatile than The Eafe Pure. It trades about -0.16 of its total potential returns per unit of risk. The Eafe Pure is currently generating about -0.16 per unit of volatility. If you would invest  1,370  in The Eafe Pure on October 12, 2024 and sell it today you would lose (147.00) from holding The Eafe Pure or give up 10.73% of portfolio value over 90 days.

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

Prudential Health Sciences  vs.  The Eafe Pure

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.

Eafe Pure

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Eafe Pure has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Prudential Health and Eafe Pure

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

The idea behind Prudential Health Sciences and The Eafe Pure 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.