Correlation Between Prudential Day and Prudential Emerging

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

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

Diversification Opportunities for Prudential Day and Prudential Emerging

0.36

Correlation Coefficient

Prudential Day  Prudential Emerging

Weak diversification

The 3 months correlation between Prudential and Prudential is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Day One and Prudential Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Emerging and Prudential Day 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 Prudential Day One are associated (or correlated) with Prudential Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Emerging has no effect on the direction of Prudential Day i.e., Prudential Day and Prudential Emerging go up and down completely randomly.

Pair Corralation between Prudential Day and Prudential Emerging

Assuming the 90 days horizon Prudential Day One is expected to under-perform the Prudential Emerging. In addition to that, Prudential Day is 7.65 times more volatile than Prudential Emerging Markets. It trades about -0.27 of its total potential returns per unit of risk. Prudential Emerging Markets is currently generating about -0.21 per unit of volatility. If you would invest  450.00  in Prudential Emerging Markets on October 1, 2024 and sell it today you would lose (6.00) from holding Prudential Emerging Markets or give up 1.33% of portfolio value over 90 days.

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

Prudential Day One  vs.  Prudential Emerging Markets

Prudential Day One

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Day One has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Prudential Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Emerging Markets has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic 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 Prudential Day and Prudential Emerging

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

The idea behind Prudential Day One and Prudential Emerging Markets 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.