Correlation Between Amazon and PRUDENTIAL

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

By analyzing existing cross correlation between Amazon Inc and PRUDENTIAL FINL INC, you can compare the effects of market volatilities on Amazon and PRUDENTIAL 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 Amazon with a short position of PRUDENTIAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and PRUDENTIAL.

Diversification Opportunities for Amazon and PRUDENTIAL

-0.3

Correlation Coefficient

Amazon  PRUDENTIAL

Very good diversification

The 3 months correlation between Amazon and PRUDENTIAL is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and PRUDENTIAL FINL INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PRUDENTIAL FINL INC and Amazon 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 Amazon Inc are associated (or correlated) with PRUDENTIAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PRUDENTIAL FINL INC has no effect on the direction of Amazon i.e., Amazon and PRUDENTIAL go up and down completely randomly.

Pair Corralation between Amazon and PRUDENTIAL

Given the investment horizon of 90 days Amazon is expected to generate 11.4 times less return on investment than PRUDENTIAL. But when comparing it to its historical volatility, Amazon Inc is 26.63 times less risky than PRUDENTIAL. It trades about 0.1 of its potential returns per unit of risk. PRUDENTIAL FINL INC is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  10,615  in PRUDENTIAL FINL INC on December 2, 2024 and sell it today you would lose (47.00) from holding PRUDENTIAL FINL INC or give up 0.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	86.26%
Values	Daily Returns

Amazon Inc  vs.  PRUDENTIAL FINL INC

Amazon Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Amazon is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

PRUDENTIAL FINL INC

Risk-Adjusted Performance

Very Weak

Over the last 90 days PRUDENTIAL FINL INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, PRUDENTIAL is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Amazon and PRUDENTIAL

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

The idea behind Amazon Inc and PRUDENTIAL FINL INC 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.