Correlation Between Western Assets and Prudential Qma

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

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

Diversification Opportunities for Western Assets and Prudential Qma

0.3

Correlation Coefficient

Western Assets  Prudential Qma

Weak diversification

The 3 months correlation between Western and Prudential is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Western Assets Emerging and Prudential Qma Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Qma Mid and Western Assets 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 Western Assets Emerging are associated (or correlated) with Prudential Qma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Qma Mid has no effect on the direction of Western Assets i.e., Western Assets and Prudential Qma go up and down completely randomly.

Pair Corralation between Western Assets and Prudential Qma

Assuming the 90 days horizon Western Assets is expected to generate 2.36 times less return on investment than Prudential Qma. But when comparing it to its historical volatility, Western Assets Emerging is 2.75 times less risky than Prudential Qma. It trades about 0.27 of its potential returns per unit of risk. Prudential Qma Mid Cap is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  965.00  in Prudential Qma Mid Cap on October 26, 2024 and sell it today you would earn a total of  34.00  from holding Prudential Qma Mid Cap or generate 3.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Western Assets Emerging  vs.  Prudential Qma Mid Cap

Western Assets Emerging

Risk-Adjusted Performance

2 of 100

Weak

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

Prudential Qma Mid

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Qma Mid Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental 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 Western Assets and Prudential Qma

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

The idea behind Western Assets Emerging and Prudential Qma Mid Cap 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.