Correlation Between Fundo Investimento and Prudential Financial

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

By analyzing existing cross correlation between Fundo Investimento Imobiliario and Prudential Financial, you can compare the effects of market volatilities on Fundo Investimento and Prudential Financial 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 Fundo Investimento with a short position of Prudential Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fundo Investimento and Prudential Financial.

Diversification Opportunities for Fundo Investimento and Prudential Financial

-0.63

Correlation Coefficient

Fundo Investimento  Prudential Financial

Excellent diversification

The 3 months correlation between Fundo and Prudential is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Fundo Investimento Imobiliario and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial and Fundo Investimento 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 Fundo Investimento Imobiliario are associated (or correlated) with Prudential Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Financial has no effect on the direction of Fundo Investimento i.e., Fundo Investimento and Prudential Financial go up and down completely randomly.

Pair Corralation between Fundo Investimento and Prudential Financial

Assuming the 90 days trading horizon Fundo Investimento Imobiliario is expected to under-perform the Prudential Financial. But the fund apears to be less risky and, when comparing its historical volatility, Fundo Investimento Imobiliario is 1.19 times less risky than Prudential Financial. The fund trades about -0.15 of its potential returns per unit of risk. The Prudential Financial is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  32,340  in Prudential Financial on September 12, 2024 and sell it today you would earn a total of  6,150  from holding Prudential Financial or generate 19.02% return on investment over 90 days.

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

Fundo Investimento Imobiliario  vs.  Prudential Financial

Fundo Investimento

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fundo Investimento Imobiliario has generated negative risk-adjusted returns adding no value to fund investors. Despite weak performance in the last few months, the Fund's essential indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Prudential Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Prudential Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fundo Investimento and Prudential Financial

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

The idea behind Fundo Investimento Imobiliario and Prudential Financial 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.