Correlation Between Prudential Real and State Street

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

By analyzing existing cross correlation between Prudential Real Estate and State Street Premier, you can compare the effects of market volatilities on Prudential Real and State Street 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 Real with a short position of State Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Real and State Street.

Diversification Opportunities for Prudential Real and State Street

-0.28

Correlation Coefficient

Prudential Real  State Street

Very good diversification

The 3 months correlation between Prudential and State is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Real Estate and State Street Premier in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Premier and Prudential Real 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 Real Estate are associated (or correlated) with State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street Premier has no effect on the direction of Prudential Real i.e., Prudential Real and State Street go up and down completely randomly.

Pair Corralation between Prudential Real and State Street

Assuming the 90 days horizon Prudential Real Estate is expected to under-perform the State Street. But the mutual fund apears to be less risky and, when comparing its historical volatility, Prudential Real Estate is 1.52 times less risky than State Street. The mutual fund trades about -0.06 of its potential returns per unit of risk. The State Street Premier is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  13,486  in State Street Premier on September 13, 2024 and sell it today you would earn a total of  1,491  from holding State Street Premier or generate 11.06% return on investment over 90 days.

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

Prudential Real Estate  vs.  State Street Premier

Prudential Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

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

State Street Premier

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in State Street Premier are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, State Street may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Prudential Real and State Street

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

The idea behind Prudential Real Estate and State Street Premier 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.