Correlation Between Prudential High and Gateway Equity

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

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

Diversification Opportunities for Prudential High and Gateway Equity

0.71

Correlation Coefficient

Prudential High  Gateway Equity

Poor diversification

The 3 months correlation between Prudential and Gateway is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Prudential High Yield and Gateway Equity Call in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gateway Equity Call and Prudential High 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 High Yield are associated (or correlated) with Gateway Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gateway Equity Call has no effect on the direction of Prudential High i.e., Prudential High and Gateway Equity go up and down completely randomly.

Pair Corralation between Prudential High and Gateway Equity

Assuming the 90 days horizon Prudential High is expected to generate 1.04 times less return on investment than Gateway Equity. But when comparing it to its historical volatility, Prudential High Yield is 3.88 times less risky than Gateway Equity. It trades about 0.38 of its potential returns per unit of risk. Gateway Equity Call is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,871  in Gateway Equity Call on February 8, 2025 and sell it today you would earn a total of  42.00  from holding Gateway Equity Call or generate 2.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Prudential High Yield  vs.  Gateway Equity Call

Prudential High Yield

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prudential High Yield has generated negative risk-adjusted returns adding no value to fund investors. 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.

Gateway Equity Call

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gateway Equity Call has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Gateway Equity 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 High and Gateway Equity

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

The idea behind Prudential High Yield and Gateway Equity Call 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.