Correlation Between Aristotle Value and Prudential Core

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

By analyzing existing cross correlation between Aristotle Value Equity and Prudential Core Conservative, you can compare the effects of market volatilities on Aristotle Value 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 Aristotle Value with a short position of Prudential Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aristotle Value and Prudential Core.

Diversification Opportunities for Aristotle Value and Prudential Core

-0.15

Correlation Coefficient

Aristotle Value  Prudential Core

Good diversification

The 3 months correlation between Aristotle and Prudential is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Aristotle Value Equity and Prudential Core Conservative in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Core Cons and Aristotle Value 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 Aristotle Value Equity 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 Core Cons has no effect on the direction of Aristotle Value i.e., Aristotle Value and Prudential Core go up and down completely randomly.

Pair Corralation between Aristotle Value and Prudential Core

Assuming the 90 days horizon Aristotle Value Equity is expected to under-perform the Prudential Core. In addition to that, Aristotle Value is 2.43 times more volatile than Prudential Core Conservative. It trades about -0.12 of its total potential returns per unit of risk. Prudential Core Conservative is currently generating about -0.13 per unit of volatility. If you would invest  881.00  in Prudential Core Conservative on September 20, 2024 and sell it today you would lose (24.00) from holding Prudential Core Conservative or give up 2.72% of portfolio value over 90 days.

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

Aristotle Value Equity  vs.  Prudential Core Conservative

Aristotle Value Equity

Risk-Adjusted Performance

0 of 100

Very Weak

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

Prudential Core Cons

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Core Conservative has generated negative risk-adjusted returns adding no value to fund investors. 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 Aristotle Value and Prudential Core

The main advantage of trading using opposite Aristotle Value and Prudential Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aristotle Value 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 Aristotle Value Equity and Prudential Core Conservative 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.