Correlation Between Prudential Financial and Dow

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

By analyzing existing cross correlation between Prudential Financial 4125 and Dow Inc, you can compare the effects of market volatilities on Prudential Financial and Dow 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 Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Financial and Dow.

Diversification Opportunities for Prudential Financial and Dow

0.25

Correlation Coefficient

Prudential Financial  Dow

Modest diversification

The 3 months correlation between Prudential and Dow is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial 4125 and Dow Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow 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 4125 are associated (or correlated) with Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Inc has no effect on the direction of Prudential Financial i.e., Prudential Financial and Dow go up and down completely randomly.

Pair Corralation between Prudential Financial and Dow

Considering the 90-day investment horizon Prudential Financial 4125 is expected to generate 0.56 times more return on investment than Dow. However, Prudential Financial 4125 is 1.8 times less risky than Dow. It trades about -0.01 of its potential returns per unit of risk. Dow Inc is currently generating about -0.07 per unit of risk. If you would invest  1,795  in Prudential Financial 4125 on December 29, 2024 and sell it today you would lose (15.00) from holding Prudential Financial 4125 or give up 0.84% of portfolio value over 90 days.

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

Prudential Financial 4125  vs.  Dow Inc

Prudential Financial 4125

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prudential Financial 4125 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Prudential Financial is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Dow Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dow Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Prudential Financial and Dow

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

The idea behind Prudential Financial 4125 and Dow 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.