Correlation Between Prudential Day and Prudential Short

Can any of the company-specific risk be diversified away by investing in both Prudential Day and Prudential Short 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 Short 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 Short Duration, you can compare the effects of market volatilities on Prudential Day and Prudential Short 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 Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Day and Prudential Short.

Diversification Opportunities for Prudential Day and Prudential Short

0.6

Correlation Coefficient

Prudential Day  Prudential Short

Poor diversification

The 3 months correlation between Prudential and Prudential is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Day One and Prudential Short Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Short Duration 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 Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Short Duration has no effect on the direction of Prudential Day i.e., Prudential Day and Prudential Short go up and down completely randomly.

Pair Corralation between Prudential Day and Prudential Short

Assuming the 90 days horizon Prudential Day One is expected to under-perform the Prudential Short. In addition to that, Prudential Day is 21.12 times more volatile than Prudential Short Duration. It trades about -0.27 of its total potential returns per unit of risk. Prudential Short Duration is currently generating about -0.35 per unit of volatility. If you would invest  845.00  in Prudential Short Duration on October 1, 2024 and sell it today you would lose (7.00) from holding Prudential Short Duration or give up 0.83% of portfolio value over 90 days.

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

Prudential Day One  vs.  Prudential Short Duration

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 Short Duration

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Prudential Day and Prudential Short

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

The idea behind Prudential Day One and Prudential Short Duration 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.