Correlation Between Prudential Financial and Marathon Oil

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

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

Diversification Opportunities for Prudential Financial and Marathon Oil

0.63

Correlation Coefficient

Prudential Financial  Marathon Oil

Poor diversification

The 3 months correlation between Prudential and Marathon is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and Marathon Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marathon Oil 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 Marathon Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marathon Oil has no effect on the direction of Prudential Financial i.e., Prudential Financial and Marathon Oil go up and down completely randomly.

Pair Corralation between Prudential Financial and Marathon Oil

Assuming the 90 days trading horizon Prudential Financial is expected to generate 1.01 times less return on investment than Marathon Oil. But when comparing it to its historical volatility, Prudential Financial is 1.25 times less risky than Marathon Oil. It trades about 0.17 of its potential returns per unit of risk. Marathon Oil is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  14,976  in Marathon Oil on September 17, 2024 and sell it today you would earn a total of  2,039  from holding Marathon Oil or generate 13.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	74.6%
Values	Daily Returns

Prudential Financial  vs.  Marathon Oil

Prudential Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 13 (%) 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.

Marathon Oil

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Marathon Oil has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Marathon Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prudential Financial and Marathon Oil

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

The idea behind Prudential Financial and Marathon Oil 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.