Correlation Between Prudential Health and American Funds

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

By analyzing existing cross correlation between Prudential Health Sciences and American Funds 2035, you can compare the effects of market volatilities on Prudential Health and American Funds 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 Health with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Health and American Funds.

Diversification Opportunities for Prudential Health and American Funds

-0.04

Correlation Coefficient

Prudential Health  American Funds

Good diversification

The 3 months correlation between Prudential and American is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Health Sciences and American Funds 2035 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2035 and Prudential Health 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 Health Sciences are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds 2035 has no effect on the direction of Prudential Health i.e., Prudential Health and American Funds go up and down completely randomly.

Pair Corralation between Prudential Health and American Funds

Assuming the 90 days horizon Prudential Health Sciences is expected to under-perform the American Funds. In addition to that, Prudential Health is 2.13 times more volatile than American Funds 2035. It trades about -0.13 of its total potential returns per unit of risk. American Funds 2035 is currently generating about 0.09 per unit of volatility. If you would invest  1,972  in American Funds 2035 on September 15, 2024 and sell it today you would earn a total of  48.00  from holding American Funds 2035 or generate 2.43% return on investment over 90 days.

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

Prudential Health Sciences  vs.  American Funds 2035

Prudential Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Health Sciences 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.

American Funds 2035

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds 2035 are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, American Funds 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 Health and American Funds

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

The idea behind Prudential Health Sciences and American Funds 2035 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.