Correlation Between Great West and Prudential Financial

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

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

Diversification Opportunities for Great West and Prudential Financial

0.95

Correlation Coefficient

Great West  Prudential Financial

Almost no diversification

The 3 months correlation between Great and Prudential is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Great West Loomis Sayles and Prudential Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial and Great West 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 Great West Loomis Sayles 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 Great West i.e., Great West and Prudential Financial go up and down completely randomly.

Pair Corralation between Great West and Prudential Financial

Assuming the 90 days horizon Great West is expected to generate 1.83 times less return on investment than Prudential Financial. In addition to that, Great West is 1.16 times more volatile than Prudential Financial Services. It trades about 0.05 of its total potential returns per unit of risk. Prudential Financial Services is currently generating about 0.1 per unit of volatility. If you would invest  1,538  in Prudential Financial Services on September 14, 2024 and sell it today you would earn a total of  1,012  from holding Prudential Financial Services or generate 65.8% return on investment over 90 days.

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

Great West Loomis Sayles  vs.  Prudential Financial Services

Great West Loomis

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Great West Loomis Sayles are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Great West may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Prudential Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial Services are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Prudential Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Great West and Prudential Financial

The main advantage of trading using opposite Great West and Prudential Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great West 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 Great West Loomis Sayles and Prudential Financial Services 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.