Correlation Between Hoteles City and Prudential Financial

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

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

Diversification Opportunities for Hoteles City and Prudential Financial

0.3

Correlation Coefficient

Hoteles City  Prudential Financial

Weak diversification

The 3 months correlation between Hoteles and Prudential is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Hoteles City Express and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial and Hoteles City 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 Hoteles City Express 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 Hoteles City i.e., Hoteles City and Prudential Financial go up and down completely randomly.

Pair Corralation between Hoteles City and Prudential Financial

Assuming the 90 days trading horizon Hoteles City Express is expected to under-perform the Prudential Financial. But the stock apears to be less risky and, when comparing its historical volatility, Hoteles City Express is 1.04 times less risky than Prudential Financial. The stock trades about -0.01 of its potential returns per unit of risk. The Prudential Financial is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  199,243  in Prudential Financial on December 2, 2024 and sell it today you would earn a total of  44,757  from holding Prudential Financial or generate 22.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Hoteles City Express  vs.  Prudential Financial

Hoteles City Express

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hoteles City Express has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Hoteles City is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Prudential Financial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Prudential Financial showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hoteles City and Prudential Financial

The main advantage of trading using opposite Hoteles City and Prudential Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hoteles City 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 Hoteles City Express 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.