Correlation Between Towle Deep and Prudential Qma

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

By analyzing existing cross correlation between Towle Deep Value and Prudential Qma Small Cap, you can compare the effects of market volatilities on Towle Deep and Prudential Qma 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 Towle Deep with a short position of Prudential Qma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Towle Deep and Prudential Qma.

Diversification Opportunities for Towle Deep and Prudential Qma

0.53

Correlation Coefficient

Towle Deep  Prudential Qma

Very weak diversification

The 3 months correlation between Towle and Prudential is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Towle Deep Value and Prudential Qma Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Qma Small and Towle Deep 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 Towle Deep Value are associated (or correlated) with Prudential Qma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Qma Small has no effect on the direction of Towle Deep i.e., Towle Deep and Prudential Qma go up and down completely randomly.

Pair Corralation between Towle Deep and Prudential Qma

Assuming the 90 days horizon Towle Deep Value is expected to generate 1.12 times more return on investment than Prudential Qma. However, Towle Deep is 1.12 times more volatile than Prudential Qma Small Cap. It trades about -0.02 of its potential returns per unit of risk. Prudential Qma Small Cap is currently generating about -0.04 per unit of risk. If you would invest  1,741  in Towle Deep Value on September 15, 2024 and sell it today you would lose (74.00) from holding Towle Deep Value or give up 4.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Towle Deep Value  vs.  Prudential Qma Small Cap

Towle Deep Value

Risk-Adjusted Performance

0 of 100

Very Weak

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

Prudential Qma Small

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Towle Deep and Prudential Qma

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

The idea behind Towle Deep Value and Prudential Qma Small Cap 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.