Correlation Between Prudential Jennison and American Funds

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

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

Diversification Opportunities for Prudential Jennison and American Funds

0.93

Correlation Coefficient

Prudential Jennison  American Funds

Almost no diversification

The 3 months correlation between Prudential and American is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Jennison Global and American Funds Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Global and Prudential Jennison 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 Jennison Global are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Global has no effect on the direction of Prudential Jennison i.e., Prudential Jennison and American Funds go up and down completely randomly.

Pair Corralation between Prudential Jennison and American Funds

Assuming the 90 days horizon Prudential Jennison Global is expected to under-perform the American Funds. In addition to that, Prudential Jennison is 1.52 times more volatile than American Funds Global. It trades about -0.22 of its total potential returns per unit of risk. American Funds Global is currently generating about -0.17 per unit of volatility. If you would invest  2,156  in American Funds Global on January 25, 2024 and sell it today you would lose (64.00) from holding American Funds Global or give up 2.97% of portfolio value over 90 days.

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

Prudential Jennison Global  vs.  American Funds Global

Prudential Jennison

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Jennison Global 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 Jennison is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Funds Global

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Global are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Prudential Jennison and American Funds

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

The idea behind Prudential Jennison Global and American Funds Global 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..