Can any of the company-specific risk be diversified away by investing in both Prudential Emerging and Pgim 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 Prudential Emerging and Pgim Jennison into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prudential Emerging Markets and Pgim Jennison Natural, you can compare the effects of market volatilities on Prudential Emerging and Pgim 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 Prudential Emerging with a short position of Pgim Jennison. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Emerging and Pgim Jennison.
Diversification Opportunities for Prudential Emerging and Pgim Jennison
The 3 months correlation between Prudential and Pgim is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Emerging Markets and Pgim Jennison Natural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pgim Jennison Natural and Prudential Emerging 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 Prudential Emerging Markets are associated (or correlated) with Pgim Jennison. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pgim Jennison Natural has no effect on the direction of Prudential Emerging i.e., Prudential Emerging and Pgim Jennison go up and down completely randomly.
Pair Corralation between Prudential Emerging and Pgim Jennison
Assuming the 90 days horizon Prudential Emerging is expected to generate 2.11 times less return on investment than Pgim Jennison. But when comparing it to its historical volatility, Prudential Emerging Markets is 3.33 times less risky than Pgim Jennison. It trades about 0.04 of its potential returns per unit of risk. Pgim Jennison Natural is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 5,332 in Pgim Jennison Natural on March 6, 2024 and sell it today you would earn a total of 829.00 from holding Pgim Jennison Natural or generate 15.55% return on investment over 90 days.
Over the last 90 days Prudential Emerging Markets has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Prudential Emerging is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Pgim Jennison Natural are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Pgim Jennison showed solid returns over the last few months and may actually be approaching a breakup point.