Correlation Between Mid Cap and Prudential Short

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

By analyzing existing cross correlation between Mid Cap 15x Strategy and Prudential Short Term Porate, you can compare the effects of market volatilities on Mid Cap and Prudential Short 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 Mid Cap with a short position of Prudential Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Prudential Short.

Diversification Opportunities for Mid Cap and Prudential Short

-0.46

Correlation Coefficient

Mid Cap  Prudential Short

Very good diversification

The 3 months correlation between Mid and Prudential is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap 15x Strategy and Prudential Short Term Porate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Short Term and Mid Cap 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 Mid Cap 15x Strategy are associated (or correlated) with Prudential Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Short Term has no effect on the direction of Mid Cap i.e., Mid Cap and Prudential Short go up and down completely randomly.

Pair Corralation between Mid Cap and Prudential Short

Assuming the 90 days horizon Mid Cap 15x Strategy is expected to generate 10.55 times more return on investment than Prudential Short. However, Mid Cap is 10.55 times more volatile than Prudential Short Term Porate. It trades about 0.17 of its potential returns per unit of risk. Prudential Short Term Porate is currently generating about -0.02 per unit of risk. If you would invest  12,483  in Mid Cap 15x Strategy on September 12, 2024 and sell it today you would earn a total of  1,883  from holding Mid Cap 15x Strategy or generate 15.08% return on investment over 90 days.

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

Mid Cap 15x Strategy  vs.  Prudential Short Term Porate

Mid Cap 15x

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap 15x Strategy are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, Mid Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Prudential Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Mid Cap and Prudential Short

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

The idea behind Mid Cap 15x Strategy and Prudential Short Term Porate 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.