Correlation Between Small-cap Growth and Prudential Qma

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Can any of the company-specific risk be diversified away by investing in both Small-cap Growth and Prudential Qma 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 Small-cap Growth and Prudential Qma into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Growth Profund and Prudential Qma Mid Cap, you can compare the effects of market volatilities on Small-cap Growth and Prudential Qma 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 Small-cap Growth with a short position of Prudential Qma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-cap Growth and Prudential Qma.

Diversification Opportunities for Small-cap Growth and Prudential Qma

0.99
  Correlation Coefficient

No risk reduction

The 3 months correlation between Small-cap and Prudential is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth Profund and Prudential Qma Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Qma Mid and Small-cap Growth 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 Small Cap Growth Profund are associated (or correlated) with Prudential Qma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Qma Mid has no effect on the direction of Small-cap Growth i.e., Small-cap Growth and Prudential Qma go up and down completely randomly.

Pair Corralation between Small-cap Growth and Prudential Qma

Assuming the 90 days horizon Small Cap Growth Profund is expected to generate 1.2 times more return on investment than Prudential Qma. However, Small-cap Growth is 1.2 times more volatile than Prudential Qma Mid Cap. It trades about 0.25 of its potential returns per unit of risk. Prudential Qma Mid Cap is currently generating about 0.29 per unit of risk. If you would invest  9,220  in Small Cap Growth Profund on April 21, 2025 and sell it today you would earn a total of  1,719  from holding Small Cap Growth Profund or generate 18.64% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Small Cap Growth Profund  vs.  Prudential Qma Mid Cap

 Performance 
       Timeline  
Small Cap Growth 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Growth Profund are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Small-cap Growth showed solid returns over the last few months and may actually be approaching a breakup point.
Prudential Qma Mid 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Qma Mid Cap are ranked lower than 23 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Prudential Qma showed solid returns over the last few months and may actually be approaching a breakup point.

Small-cap Growth and Prudential Qma Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Small-cap Growth and Prudential Qma

The main advantage of trading using opposite Small-cap Growth and Prudential Qma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small-cap Growth position performs unexpectedly, Prudential Qma 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 Qma will offset losses from the drop in Prudential Qma's long position.
The idea behind Small Cap Growth Profund and Prudential Qma Mid Cap 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.

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