Correlation Between Prudential Plc and MetLife

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

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

Diversification Opportunities for Prudential Plc and MetLife

0.64

Correlation Coefficient

Prudential Plc  MetLife

Poor diversification

The 3 months correlation between Prudential and MetLife is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Prudential plc and MetLife in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetLife and Prudential Plc 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 plc are associated (or correlated) with MetLife. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MetLife has no effect on the direction of Prudential Plc i.e., Prudential Plc and MetLife go up and down completely randomly.

Pair Corralation between Prudential Plc and MetLife

Assuming the 90 days trading horizon Prudential plc is expected to generate 0.76 times more return on investment than MetLife. However, Prudential plc is 1.31 times less risky than MetLife. It trades about 0.17 of its potential returns per unit of risk. MetLife is currently generating about -0.05 per unit of risk. If you would invest  2,344  in Prudential plc on September 27, 2024 and sell it today you would earn a total of  88.00  from holding Prudential plc or generate 3.75% return on investment over 90 days.

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

Prudential plc  vs.  MetLife

Prudential plc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Prudential Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

MetLife

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MetLife are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, MetLife sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prudential Plc and MetLife

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

The idea behind Prudential plc and MetLife 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.