Correlation Between Visa and Prudential Jennison

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

By analyzing existing cross correlation between Visa Class A and Prudential Jennison Emerging, you can compare the effects of market volatilities on Visa and Prudential Jennison 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 Visa with a short position of Prudential Jennison. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Prudential Jennison.

Diversification Opportunities for Visa and Prudential Jennison

-0.19

Correlation Coefficient

Visa  Prudential Jennison

Good diversification

The 3 months correlation between Visa and Prudential is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Prudential Jennison Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Jennison and Visa 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 Visa Class A are associated (or correlated) with Prudential Jennison. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Jennison has no effect on the direction of Visa i.e., Visa and Prudential Jennison go up and down completely randomly.

Pair Corralation between Visa and Prudential Jennison

Taking into account the 90-day investment horizon Visa is expected to generate 1.47 times less return on investment than Prudential Jennison. But when comparing it to its historical volatility, Visa Class A is 1.17 times less risky than Prudential Jennison. It trades about 0.1 of its potential returns per unit of risk. Prudential Jennison Emerging is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,567  in Prudential Jennison Emerging on September 28, 2024 and sell it today you would earn a total of  44.00  from holding Prudential Jennison Emerging or generate 2.81% return on investment over 90 days.

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

Visa Class A  vs.  Prudential Jennison Emerging

Visa Class A

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

Prudential Jennison

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Jennison Emerging are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Prudential Jennison is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Visa and Prudential Jennison

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

The idea behind Visa Class A and Prudential Jennison Emerging 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.