Correlation Between Prudential Government and Invesco Energy

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

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

Diversification Opportunities for Prudential Government and Invesco Energy

-0.69

Correlation Coefficient

Prudential Government  Invesco Energy

Excellent diversification

The 3 months correlation between Prudential and Invesco is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Government Income and Invesco Energy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Energy and Prudential Government 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 Government Income are associated (or correlated) with Invesco Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Energy has no effect on the direction of Prudential Government i.e., Prudential Government and Invesco Energy go up and down completely randomly.

Pair Corralation between Prudential Government and Invesco Energy

Assuming the 90 days horizon Prudential Government Income is expected to under-perform the Invesco Energy. But the mutual fund apears to be less risky and, when comparing its historical volatility, Prudential Government Income is 3.27 times less risky than Invesco Energy. The mutual fund trades about -0.11 of its potential returns per unit of risk. The Invesco Energy Fund is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,380  in Invesco Energy Fund on September 13, 2024 and sell it today you would earn a total of  159.00  from holding Invesco Energy Fund or generate 6.68% return on investment over 90 days.

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

Prudential Government Income  vs.  Invesco Energy Fund

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.

Invesco Energy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Energy Fund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Invesco Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Prudential Government and Invesco Energy

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

The idea behind Prudential Government Income and Invesco Energy Fund 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.