Correlation Between Extended Market and Prudential California

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

By analyzing existing cross correlation between Extended Market Index and Prudential California Muni, you can compare the effects of market volatilities on Extended Market and Prudential California 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 Extended Market with a short position of Prudential California. Check out your portfolio center. Please also check ongoing floating volatility patterns of Extended Market and Prudential California.

Diversification Opportunities for Extended Market and Prudential California

0.8

Correlation Coefficient

Extended Market  Prudential California

Very poor diversification

The 3 months correlation between Extended and Prudential is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Extended Market Index and Prudential California Muni in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential California and Extended Market 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 Extended Market Index are associated (or correlated) with Prudential California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential California has no effect on the direction of Extended Market i.e., Extended Market and Prudential California go up and down completely randomly.

Pair Corralation between Extended Market and Prudential California

Assuming the 90 days horizon Extended Market Index is expected to generate 10.29 times more return on investment than Prudential California. However, Extended Market is 10.29 times more volatile than Prudential California Muni. It trades about 0.17 of its potential returns per unit of risk. Prudential California Muni is currently generating about 0.24 per unit of risk. If you would invest  1,971  in Extended Market Index on May 25, 2025 and sell it today you would earn a total of  210.00  from holding Extended Market Index or generate 10.65% return on investment over 90 days.

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

Extended Market Index  vs.  Prudential California Muni

Extended Market Index

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Extended Market Index are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Extended Market may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Prudential California

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential California Muni are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Prudential California is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Extended Market and Prudential California

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

The idea behind Extended Market Index and Prudential California Muni 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.