Correlation Between Wasatch Micro and Prudential Government

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

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

Diversification Opportunities for Wasatch Micro and Prudential Government

-0.54

Correlation Coefficient

Wasatch Micro  Prudential Government

Excellent diversification

The 3 months correlation between Wasatch and Prudential is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Wasatch Micro Cap and Prudential Government Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Government and Wasatch Micro 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 Wasatch Micro Cap are associated (or correlated) with Prudential Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Government has no effect on the direction of Wasatch Micro i.e., Wasatch Micro and Prudential Government go up and down completely randomly.

Pair Corralation between Wasatch Micro and Prudential Government

Assuming the 90 days horizon Wasatch Micro Cap is expected to generate 3.53 times more return on investment than Prudential Government. However, Wasatch Micro is 3.53 times more volatile than Prudential Government Income. It trades about 0.2 of its potential returns per unit of risk. Prudential Government Income is currently generating about -0.11 per unit of risk. If you would invest  389.00  in Wasatch Micro Cap on September 13, 2024 and sell it today you would earn a total of  60.00  from holding Wasatch Micro Cap or generate 15.42% return on investment over 90 days.

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

Wasatch Micro Cap  vs.  Prudential Government Income

Wasatch Micro Cap

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wasatch Micro Cap are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Wasatch Micro showed solid returns over the last few months and may actually be approaching a breakup point.

Prudential Government

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Wasatch Micro and Prudential Government

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

The idea behind Wasatch Micro Cap and Prudential Government Income 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.