Correlation Between Ultra-short Fixed and Prudential Floating

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

By analyzing existing cross correlation between Ultra Short Fixed Income and Prudential Floating Rate, you can compare the effects of market volatilities on Ultra-short Fixed and Prudential Floating 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 Ultra-short Fixed with a short position of Prudential Floating. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra-short Fixed and Prudential Floating.

Diversification Opportunities for Ultra-short Fixed and Prudential Floating

0.9

Correlation Coefficient

Ultra-short Fixed  Prudential Floating

Almost no diversification

The 3 months correlation between Ultra-short and Prudential is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Short Fixed Income and Prudential Floating Rate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Floating Rate and Ultra-short Fixed 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 Ultra Short Fixed Income are associated (or correlated) with Prudential Floating. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Floating Rate has no effect on the direction of Ultra-short Fixed i.e., Ultra-short Fixed and Prudential Floating go up and down completely randomly.

Pair Corralation between Ultra-short Fixed and Prudential Floating

Assuming the 90 days horizon Ultra-short Fixed is expected to generate 1.39 times less return on investment than Prudential Floating. But when comparing it to its historical volatility, Ultra Short Fixed Income is 1.87 times less risky than Prudential Floating. It trades about 0.19 of its potential returns per unit of risk. Prudential Floating Rate is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  903.00  in Prudential Floating Rate on November 28, 2024 and sell it today you would earn a total of  11.00  from holding Prudential Floating Rate or generate 1.22% return on investment over 90 days.

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

Ultra Short Fixed Income  vs.  Prudential Floating Rate

Ultra Short Fixed

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Short Fixed Income are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Ultra-short Fixed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Prudential Floating Rate

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Floating Rate are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Prudential Floating is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ultra-short Fixed and Prudential Floating

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

The idea behind Ultra Short Fixed Income and Prudential Floating Rate 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.