Correlation Between Prudential Health and California Municipal

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

Diversification Opportunities for Prudential Health and California Municipal

0.65

Correlation Coefficient

Prudential Health  California Municipal

Poor diversification

The 3 months correlation between Prudential and California is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Health Sciences and California Municipal Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Municipal 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 California Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Municipal has no effect on the direction of Prudential Health i.e., Prudential Health and California Municipal go up and down completely randomly.

Pair Corralation between Prudential Health and California Municipal

Assuming the 90 days horizon Prudential Health Sciences is expected to under-perform the California Municipal. In addition to that, Prudential Health is 18.99 times more volatile than California Municipal Portfolio. It trades about -0.27 of its total potential returns per unit of risk. California Municipal Portfolio is currently generating about -0.36 per unit of volatility. If you would invest  1,401  in California Municipal Portfolio on October 10, 2024 and sell it today you would lose (17.00) from holding California Municipal Portfolio or give up 1.21% 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.  California Municipal Portfolio

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.

California Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days California Municipal Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, California Municipal 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 California Municipal

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

The idea behind Prudential Health Sciences and California Municipal Portfolio 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.