Correlation Between Prudential Financial and Shopify

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

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

Diversification Opportunities for Prudential Financial and Shopify

-0.04

Correlation Coefficient

Prudential Financial  Shopify

Good diversification

The 3 months correlation between Prudential and Shopify is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify 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 Shopify. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shopify has no effect on the direction of Prudential Financial i.e., Prudential Financial and Shopify go up and down completely randomly.

Pair Corralation between Prudential Financial and Shopify

Assuming the 90 days trading horizon Prudential Financial is expected to under-perform the Shopify. But the stock apears to be less risky and, when comparing its historical volatility, Prudential Financial is 1.92 times less risky than Shopify. The stock trades about -0.17 of its potential returns per unit of risk. The Shopify is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  552.00  in Shopify on December 3, 2024 and sell it today you would lose (12.00) from holding Shopify or give up 2.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Prudential Financial  vs.  Shopify

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 uncertain 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.

Shopify

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shopify has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical indicators, Shopify 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 Shopify

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

The idea behind Prudential Financial and Shopify 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.