Correlation Between Litigation Capital and Prudential Financial

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

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

Diversification Opportunities for Litigation Capital and Prudential Financial

0.76

Correlation Coefficient

Litigation Capital  Prudential Financial

Poor diversification

The 3 months correlation between Litigation and Prudential is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Litigation Capital Management and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial and Litigation Capital 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 Litigation Capital Management 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 Litigation Capital i.e., Litigation Capital and Prudential Financial go up and down completely randomly.

Pair Corralation between Litigation Capital and Prudential Financial

Assuming the 90 days trading horizon Litigation Capital Management is expected to under-perform the Prudential Financial. In addition to that, Litigation Capital is 1.84 times more volatile than Prudential Financial. It trades about -0.33 of its total potential returns per unit of risk. Prudential Financial is currently generating about -0.11 per unit of volatility. If you would invest  12,300  in Prudential Financial on October 10, 2024 and sell it today you would lose (303.00) from holding Prudential Financial or give up 2.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	90.48%
Values	Daily Returns

Litigation Capital Management  vs.  Prudential Financial

Litigation Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Litigation Capital Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 comparatively stable basic indicators, Prudential Financial is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Litigation Capital and Prudential Financial

The main advantage of trading using opposite Litigation Capital and Prudential Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Litigation Capital 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 Litigation Capital Management 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.