Correlation Between MetLife Preferred and Prudential Plc

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

By analyzing existing cross correlation between MetLife Preferred Stock and Prudential plc, you can compare the effects of market volatilities on MetLife Preferred and Prudential Plc 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 MetLife Preferred with a short position of Prudential Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of MetLife Preferred and Prudential Plc.

Diversification Opportunities for MetLife Preferred and Prudential Plc

0.15

Correlation Coefficient

MetLife Preferred  Prudential Plc

Average diversification

The 3 months correlation between MetLife and Prudential is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding MetLife Preferred Stock and Prudential plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential plc and MetLife Preferred 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 MetLife Preferred Stock are associated (or correlated) with Prudential Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential plc has no effect on the direction of MetLife Preferred i.e., MetLife Preferred and Prudential Plc go up and down completely randomly.

Pair Corralation between MetLife Preferred and Prudential Plc

Assuming the 90 days trading horizon MetLife Preferred Stock is expected to under-perform the Prudential Plc. But the preferred stock apears to be less risky and, when comparing its historical volatility, MetLife Preferred Stock is 6.21 times less risky than Prudential Plc. The preferred stock trades about -0.01 of its potential returns per unit of risk. The Prudential plc is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  795.00  in Prudential plc on December 22, 2024 and sell it today you would earn a total of  137.00  from holding Prudential plc or generate 17.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	88.33%
Values	Daily Returns

MetLife Preferred Stock  vs.  Prudential plc

MetLife Preferred Stock

Risk-Adjusted Performance

Very Weak

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

Prudential plc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential plc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Prudential Plc reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MetLife Preferred and Prudential Plc

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

The idea behind MetLife Preferred Stock and Prudential plc 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.