Correlation Between Prudential Core and Highland Small

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

By analyzing existing cross correlation between Prudential Core Conservative and Highland Small Cap Equity, you can compare the effects of market volatilities on Prudential Core and Highland 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 Core with a short position of Highland Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Core and Highland Small.

Diversification Opportunities for Prudential Core and Highland Small

-0.68

Correlation Coefficient

Prudential Core  Highland Small

Excellent diversification

The 3 months correlation between Prudential and Highland is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Core Conservative and Highland Small Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highland Small Cap and Prudential Core 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 Core Conservative are associated (or correlated) with Highland Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highland Small Cap has no effect on the direction of Prudential Core i.e., Prudential Core and Highland Small go up and down completely randomly.

Pair Corralation between Prudential Core and Highland Small

Assuming the 90 days horizon Prudential Core Conservative is expected to under-perform the Highland Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Prudential Core Conservative is 2.93 times less risky than Highland Small. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Highland Small Cap Equity is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  292.00  in Highland Small Cap Equity on September 12, 2024 and sell it today you would earn a total of  26.00  from holding Highland Small Cap Equity or generate 8.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Prudential Core Conservative  vs.  Highland Small Cap Equity

Prudential Core Cons

Risk-Adjusted Performance

0 of 100

Very Weak

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

Highland Small Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Highland Small Cap Equity are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Highland Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Prudential Core and Highland Small

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

The idea behind Prudential Core Conservative and Highland Small Cap Equity 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.