Correlation Between Power REIT and Prudential Real

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

By analyzing existing cross correlation between Power REIT and Prudential Real Estate, you can compare the effects of market volatilities on Power REIT and Prudential Real 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 Power REIT with a short position of Prudential Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of Power REIT and Prudential Real.

Diversification Opportunities for Power REIT and Prudential Real

0.55

Correlation Coefficient

Power REIT  Prudential Real

Very weak diversification

The 3 months correlation between Power and Prudential is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Power REIT and Prudential Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Real Estate and Power REIT 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 Power REIT are associated (or correlated) with Prudential Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Real Estate has no effect on the direction of Power REIT i.e., Power REIT and Prudential Real go up and down completely randomly.

Pair Corralation between Power REIT and Prudential Real

Allowing for the 90-day total investment horizon Power REIT is expected to generate 10.24 times more return on investment than Prudential Real. However, Power REIT is 10.24 times more volatile than Prudential Real Estate. It trades about 0.02 of its potential returns per unit of risk. Prudential Real Estate is currently generating about -0.15 per unit of risk. If you would invest  121.00  in Power REIT on November 29, 2024 and sell it today you would lose (13.00) from holding Power REIT or give up 10.74% of portfolio value over 90 days.

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

Power REIT  vs.  Prudential Real Estate

Power REIT

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Power REIT are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Power REIT may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Prudential Real Estate

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prudential Real Estate 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 Power REIT and Prudential Real

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

The idea behind Power REIT and Prudential Real Estate 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.