Correlation Between IShares Trust and Prudential Financial

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

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

Diversification Opportunities for IShares Trust and Prudential Financial

0.69

Correlation Coefficient

IShares Trust  Prudential Financial

Poor diversification

The 3 months correlation between IShares and Prudential is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial and IShares Trust 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 iShares Trust 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 IShares Trust i.e., IShares Trust and Prudential Financial go up and down completely randomly.

Pair Corralation between IShares Trust and Prudential Financial

Assuming the 90 days trading horizon iShares Trust is expected to generate 8.41 times more return on investment than Prudential Financial. However, IShares Trust is 8.41 times more volatile than Prudential Financial. It trades about 0.18 of its potential returns per unit of risk. Prudential Financial is currently generating about 0.13 per unit of risk. If you would invest  283,796  in iShares Trust on September 17, 2024 and sell it today you would earn a total of  45,814  from holding iShares Trust or generate 16.14% return on investment over 90 days.

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

iShares Trust   vs.  Prudential Financial

iShares Trust

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Trust are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, IShares Trust showed solid returns over the last few months and may actually be approaching a breakup point.

Prudential Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Prudential Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Trust and Prudential Financial

The main advantage of trading using opposite IShares Trust and Prudential Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Trust 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 iShares Trust 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.