Correlation Between Prudential Health and Vanguard Health

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

Diversification Opportunities for Prudential Health and Vanguard Health

0.87

Correlation Coefficient

Prudential Health  Vanguard Health

Very poor diversification

The 3 months correlation between Prudential and Vanguard is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Health Sciences and Vanguard Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Health Care 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 Vanguard Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Health Care has no effect on the direction of Prudential Health i.e., Prudential Health and Vanguard Health go up and down completely randomly.

Pair Corralation between Prudential Health and Vanguard Health

Assuming the 90 days horizon Prudential Health Sciences is expected to generate 1.2 times more return on investment than Vanguard Health. However, Prudential Health is 1.2 times more volatile than Vanguard Health Care. It trades about -0.13 of its potential returns per unit of risk. Vanguard Health Care is currently generating about -0.17 per unit of risk. If you would invest  4,243  in Prudential Health Sciences on September 12, 2024 and sell it today you would lose (142.00) from holding Prudential Health Sciences or give up 3.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Prudential Health Sciences  vs.  Vanguard Health Care

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 fairly strong basic indicators, Prudential Health is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Health Care has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental 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 Health and Vanguard Health

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

The idea behind Prudential Health Sciences and Vanguard Health Care 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 CEOs Directory module to screen CEOs from public companies around the world.