Correlation Between Prudential Financial and Alphabet

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

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

Diversification Opportunities for Prudential Financial and Alphabet

0.92

Correlation Coefficient

Prudential Financial  Alphabet

Almost no diversification

The 3 months correlation between Prudential and Alphabet is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and Alphabet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet has no effect on the direction of Prudential Financial i.e., Prudential Financial and Alphabet go up and down completely randomly.

Pair Corralation between Prudential Financial and Alphabet

Assuming the 90 days trading horizon Prudential Financial is expected to generate 0.9 times more return on investment than Alphabet. However, Prudential Financial is 1.11 times less risky than Alphabet. It trades about -0.21 of its potential returns per unit of risk. Alphabet is currently generating about -0.22 per unit of risk. If you would invest  38,490  in Prudential Financial on December 26, 2024 and sell it today you would lose (7,311) from holding Prudential Financial or give up 18.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Prudential Financial  vs.  Alphabet

Prudential Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prudential Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Alphabet

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alphabet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Prudential Financial and Alphabet

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

The idea behind Prudential Financial and Alphabet 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.