Correlation Between Mid Cap and Prudential

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

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

Diversification Opportunities for Mid Cap and Prudential

0.38

Correlation Coefficient

Mid Cap  Prudential

Weak diversification

The 3 months correlation between Mid and Prudential is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Growth 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 Mid Cap 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 Mid Cap Growth are associated (or correlated) with Prudential. 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 Mid Cap i.e., Mid Cap and Prudential go up and down completely randomly.

Pair Corralation between Mid Cap and Prudential

Assuming the 90 days horizon Mid Cap is expected to generate 1.61 times less return on investment than Prudential. In addition to that, Mid Cap is 1.2 times more volatile than Prudential Real Estate. It trades about 0.05 of its total potential returns per unit of risk. Prudential Real Estate is currently generating about 0.1 per unit of volatility. If you would invest  1,301  in Prudential Real Estate on October 12, 2024 and sell it today you would earn a total of  226.00  from holding Prudential Real Estate or generate 17.37% return on investment over 90 days.

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

Mid Cap Growth  vs.  Prudential Real Estate

Mid Cap Growth

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Growth are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Mid Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Prudential Real Estate

Risk-Adjusted Performance

0 of 100

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 fairly strong basic indicators, Prudential is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mid Cap and Prudential

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

The idea behind Mid Cap Growth 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.