Correlation Between Prudential Financial and AbbVie

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

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

Diversification Opportunities for Prudential Financial and AbbVie

-0.06

Correlation Coefficient

Prudential Financial  AbbVie

Good diversification

The 3 months correlation between Prudential and AbbVie is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and AbbVie Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AbbVie Inc and Prudential Financial 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 Prudential Financial are associated (or correlated) with AbbVie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AbbVie Inc has no effect on the direction of Prudential Financial i.e., Prudential Financial and AbbVie go up and down completely randomly.

Pair Corralation between Prudential Financial and AbbVie

Assuming the 90 days trading horizon Prudential Financial is expected to generate 0.88 times more return on investment than AbbVie. However, Prudential Financial is 1.14 times less risky than AbbVie. It trades about 0.14 of its potential returns per unit of risk. AbbVie Inc is currently generating about 0.09 per unit of risk. If you would invest  24,698  in Prudential Financial on October 9, 2024 and sell it today you would earn a total of  11,709  from holding Prudential Financial or generate 47.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	76.61%
Values	Daily Returns

Prudential Financial  vs.  AbbVie Inc

Prudential Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Prudential Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

AbbVie Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AbbVie Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, AbbVie is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Prudential Financial and AbbVie

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

The idea behind Prudential Financial and AbbVie Inc 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.