Correlation Between Vanguard 500 and Prudential Short

Can any of the company-specific risk be diversified away by investing in both Vanguard 500 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 Vanguard 500 and Prudential Short into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vanguard 500 Index and Prudential Short Duration, you can compare the effects of market volatilities on Vanguard 500 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 Vanguard 500 with a short position of Prudential Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard 500 and Prudential Short.

Diversification Opportunities for Vanguard 500 and Prudential Short

-0.4

Correlation Coefficient

Vanguard 500  Prudential Short

Very good diversification

The 3 months correlation between Vanguard and Prudential is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard 500 Index and Prudential Short Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Short Duration and Vanguard 500 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 Vanguard 500 Index 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 Duration has no effect on the direction of Vanguard 500 i.e., Vanguard 500 and Prudential Short go up and down completely randomly.

Pair Corralation between Vanguard 500 and Prudential Short

Assuming the 90 days horizon Vanguard 500 Index is expected to generate 2.36 times more return on investment than Prudential Short. However, Vanguard 500 is 2.36 times more volatile than Prudential Short Duration. It trades about 0.13 of its potential returns per unit of risk. Prudential Short Duration is currently generating about 0.02 per unit of risk. If you would invest  43,541  in Vanguard 500 Index on September 14, 2024 and sell it today you would earn a total of  12,440  from holding Vanguard 500 Index or generate 28.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Vanguard 500 Index  vs.  Prudential Short Duration

Vanguard 500 Index

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard 500 Index are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard 500 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Prudential Short Duration

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Short Duration 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 Vanguard 500 and Prudential Short

The main advantage of trading using opposite Vanguard 500 and Prudential Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 500 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 Vanguard 500 Index and Prudential Short Duration 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.