Correlation Between Entergy Arkansas and Prudential Financial

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

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

Diversification Opportunities for Entergy Arkansas and Prudential Financial

0.71

Correlation Coefficient

Entergy Arkansas  Prudential Financial

Poor diversification

The 3 months correlation between Entergy and Prudential is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Entergy Arkansas LLC and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial and Entergy Arkansas 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 Entergy Arkansas LLC 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 Entergy Arkansas i.e., Entergy Arkansas and Prudential Financial go up and down completely randomly.

Pair Corralation between Entergy Arkansas and Prudential Financial

Considering the 90-day investment horizon Entergy Arkansas LLC is expected to generate 1.5 times more return on investment than Prudential Financial. However, Entergy Arkansas is 1.5 times more volatile than Prudential Financial. It trades about -0.11 of its potential returns per unit of risk. Prudential Financial is currently generating about -0.37 per unit of risk. If you would invest  2,188  in Entergy Arkansas LLC on October 11, 2024 and sell it today you would lose (57.00) from holding Entergy Arkansas LLC or give up 2.61% of portfolio value over 90 days.

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

Entergy Arkansas LLC  vs.  Prudential Financial

Entergy Arkansas LLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Entergy Arkansas LLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Prudential Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Entergy Arkansas and Prudential Financial

The main advantage of trading using opposite Entergy Arkansas and Prudential Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Entergy Arkansas 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 Entergy Arkansas LLC 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.

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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .