Correlation Between Ultra-short Fixed and Prudential Core

Can any of the company-specific risk be diversified away by investing in both Ultra-short Fixed and Prudential Core 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 Core 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 E Bond, you can compare the effects of market volatilities on Ultra-short Fixed and Prudential Core 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 Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra-short Fixed and Prudential Core.

Diversification Opportunities for Ultra-short Fixed and Prudential Core

0.26

Correlation Coefficient

Ultra-short Fixed  Prudential Core

Modest diversification

The 3 months correlation between Ultra-short and Prudential is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Short Fixed Income and Prudential E Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential E Bond 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 Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential E Bond has no effect on the direction of Ultra-short Fixed i.e., Ultra-short Fixed and Prudential Core go up and down completely randomly.

Pair Corralation between Ultra-short Fixed and Prudential Core

Assuming the 90 days horizon Ultra Short Fixed Income is expected to generate 0.26 times more return on investment than Prudential Core. However, Ultra Short Fixed Income is 3.89 times less risky than Prudential Core. It trades about 0.18 of its potential returns per unit of risk. Prudential E Bond is currently generating about 0.04 per unit of risk. If you would invest  1,023  in Ultra Short Fixed Income on December 1, 2024 and sell it today you would earn a total of  9.00  from holding Ultra Short Fixed Income or generate 0.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Ultra Short Fixed Income  vs.  Prudential E Bond

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 E Bond

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential E Bond are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. 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.

Pair Trading with Ultra-short Fixed and Prudential Core

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

The idea behind Ultra Short Fixed Income and Prudential E Bond 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.