Correlation Between Smallcap Value and Prudential Short

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

By analyzing existing cross correlation between Smallcap Value Fund and Prudential Short Duration, you can compare the effects of market volatilities on Smallcap Value and Prudential Short 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 Smallcap Value with a short position of Prudential Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap Value and Prudential Short.

Diversification Opportunities for Smallcap Value and Prudential Short

0.66

Correlation Coefficient

Smallcap Value  Prudential Short

Poor diversification

The 3 months correlation between Smallcap and Prudential is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Value Fund and Prudential Short Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Short Duration and Smallcap Value 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 Smallcap Value Fund are associated (or correlated) with Prudential Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Short Duration has no effect on the direction of Smallcap Value i.e., Smallcap Value and Prudential Short go up and down completely randomly.

Pair Corralation between Smallcap Value and Prudential Short

Assuming the 90 days horizon Smallcap Value Fund is expected to generate 8.43 times more return on investment than Prudential Short. However, Smallcap Value is 8.43 times more volatile than Prudential Short Duration. It trades about 0.13 of its potential returns per unit of risk. Prudential Short Duration is currently generating about 0.3 per unit of risk. If you would invest  908.00  in Smallcap Value Fund on July 6, 2025 and sell it today you would earn a total of  236.00  from holding Smallcap Value Fund or generate 25.99% return on investment over 90 days.

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

Smallcap Value Fund  vs.  Prudential Short Duration

Smallcap Value

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Value Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking indicators, Smallcap Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Prudential Short Duration

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Short Duration are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Prudential Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Smallcap Value and Prudential Short

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

The idea behind Smallcap Value Fund and Prudential Short Duration 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.