Correlation Between SOFI TECHNOLOGIES and Prudential Financial

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

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

Diversification Opportunities for SOFI TECHNOLOGIES and Prudential Financial

0.88

Correlation Coefficient

SOFI TECHNOLOGIES  Prudential Financial

Very poor diversification

The 3 months correlation between SOFI and Prudential is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding SOFI TECHNOLOGIES and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial and SOFI TECHNOLOGIES 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 SOFI TECHNOLOGIES are associated (or correlated) with Prudential Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Financial has no effect on the direction of SOFI TECHNOLOGIES i.e., SOFI TECHNOLOGIES and Prudential Financial go up and down completely randomly.

Pair Corralation between SOFI TECHNOLOGIES and Prudential Financial

Assuming the 90 days horizon SOFI TECHNOLOGIES is expected to generate 2.74 times more return on investment than Prudential Financial. However, SOFI TECHNOLOGIES is 2.74 times more volatile than Prudential Financial. It trades about 0.35 of its potential returns per unit of risk. Prudential Financial is currently generating about 0.12 per unit of risk. If you would invest  718.00  in SOFI TECHNOLOGIES on September 15, 2024 and sell it today you would earn a total of  834.00  from holding SOFI TECHNOLOGIES or generate 116.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.48%
Values	Daily Returns

SOFI TECHNOLOGIES  vs.  Prudential Financial

SOFI TECHNOLOGIES

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in SOFI TECHNOLOGIES are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SOFI TECHNOLOGIES reported solid returns over the last few months and may actually be approaching a breakup point.

Prudential Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Prudential Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SOFI TECHNOLOGIES and Prudential Financial

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

The idea behind SOFI TECHNOLOGIES and Prudential Financial 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.