Correlation Between Prudential Government and Moderate Balanced

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

Diversification Opportunities for Prudential Government and Moderate Balanced

-0.62

Correlation Coefficient

Prudential Government  Moderate Balanced

Excellent diversification

The 3 months correlation between Prudential and Moderate is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Government Income and Moderate Balanced Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moderate Balanced 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 Moderate Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moderate Balanced has no effect on the direction of Prudential Government i.e., Prudential Government and Moderate Balanced go up and down completely randomly.

Pair Corralation between Prudential Government and Moderate Balanced

Assuming the 90 days horizon Prudential Government Income is expected to under-perform the Moderate Balanced. But the mutual fund apears to be less risky and, when comparing its historical volatility, Prudential Government Income is 1.45 times less risky than Moderate Balanced. The mutual fund trades about -0.1 of its potential returns per unit of risk. The Moderate Balanced Allocation is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,197  in Moderate Balanced Allocation on September 12, 2024 and sell it today you would earn a total of  70.00  from holding Moderate Balanced Allocation or generate 5.85% 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.  Moderate Balanced Allocation

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.

Moderate Balanced

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Moderate Balanced Allocation are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Moderate Balanced 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 Government and Moderate Balanced

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

The idea behind Prudential Government Income and Moderate Balanced Allocation 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.