Correlation Between Low-duration Bond and Prudential High

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

By analyzing existing cross correlation between Low Duration Bond Investor and Prudential High Yield, you can compare the effects of market volatilities on Low-duration Bond and Prudential High 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 Low-duration Bond with a short position of Prudential High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Low-duration Bond and Prudential High.

Diversification Opportunities for Low-duration Bond and Prudential High

0.78

Correlation Coefficient

Low-duration Bond  Prudential High

Poor diversification

The 3 months correlation between Low-duration and Prudential is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Low Duration Bond Investor and Prudential High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential High Yield and Low-duration Bond 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 Low Duration Bond Investor are associated (or correlated) with Prudential High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential High Yield has no effect on the direction of Low-duration Bond i.e., Low-duration Bond and Prudential High go up and down completely randomly.

Pair Corralation between Low-duration Bond and Prudential High

Assuming the 90 days horizon Low Duration Bond Investor is expected to generate 0.57 times more return on investment than Prudential High. However, Low Duration Bond Investor is 1.75 times less risky than Prudential High. It trades about -0.06 of its potential returns per unit of risk. Prudential High Yield is currently generating about -0.16 per unit of risk. If you would invest  1,276  in Low Duration Bond Investor on January 25, 2024 and sell it today you would lose (3.00) from holding Low Duration Bond Investor or give up 0.24% of portfolio value over 90 days.

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

Low Duration Bond Investor  vs.  Prudential High Yield

Low Duration Bond

Risk-Adjusted Performance

2 of 100

Weak

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

Prudential High Yield

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential High Yield are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Prudential High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Low-duration Bond and Prudential High

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

The idea behind Low Duration Bond Investor and Prudential High Yield 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.