Correlation Between Mid Cap and Prudential Total

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

By analyzing existing cross correlation between Mid Cap Value and Prudential Total Return, you can compare the effects of market volatilities on Mid Cap and Prudential Total 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 Total. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Prudential Total.

Diversification Opportunities for Mid Cap and Prudential Total

0.23

Correlation Coefficient

Mid Cap  Prudential Total

Modest diversification

The 3 months correlation between Mid and Prudential is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Value and Prudential Total Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Total Return 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 Value are associated (or correlated) with Prudential Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Total Return has no effect on the direction of Mid Cap i.e., Mid Cap and Prudential Total go up and down completely randomly.

Pair Corralation between Mid Cap and Prudential Total

Assuming the 90 days horizon Mid Cap Value is expected to generate 2.06 times more return on investment than Prudential Total. However, Mid Cap is 2.06 times more volatile than Prudential Total Return. It trades about 0.0 of its potential returns per unit of risk. Prudential Total Return is currently generating about -0.13 per unit of risk. If you would invest  1,570  in Mid Cap Value on February 1, 2024 and sell it today you would lose (1.00) from holding Mid Cap Value or give up 0.06% of portfolio value over 90 days.

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

Mid Cap Value  vs.  Prudential Total Return

Mid Cap Value

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Value are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Mid Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Prudential Total Return

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Total Return has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Prudential Total 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 Total

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

The idea behind Mid Cap Value and Prudential Total Return 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.

Check out your portfolio center.

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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.