Correlation Between Prudential Financial and Southern Company

Can any of the company-specific risk be diversified away by investing in both Prudential Financial and Southern Company 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 Southern Company 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 Southern Company Series, you can compare the effects of market volatilities on Prudential Financial and Southern Company 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 Southern Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Financial and Southern Company.

Diversification Opportunities for Prudential Financial and Southern Company

0.95

Correlation Coefficient

Prudential Financial  Southern Company

Almost no diversification

The 3 months correlation between Prudential and Southern is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial 4125 and Southern Company Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Company 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 Southern Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Company has no effect on the direction of Prudential Financial i.e., Prudential Financial and Southern Company go up and down completely randomly.

Pair Corralation between Prudential Financial and Southern Company

Considering the 90-day investment horizon Prudential Financial 4125 is expected to generate 0.98 times more return on investment than Southern Company. However, Prudential Financial 4125 is 1.02 times less risky than Southern Company. It trades about -0.05 of its potential returns per unit of risk. Southern Company Series is currently generating about -0.08 per unit of risk. If you would invest  1,989  in Prudential Financial 4125 on August 31, 2024 and sell it today you would lose (55.00) from holding Prudential Financial 4125 or give up 2.77% of portfolio value over 90 days.

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

Prudential Financial 4125  vs.  Southern Company Series

Prudential Financial 4125

Risk-Adjusted Performance

0 of 100

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.

Southern Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Company Series has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking indicators, Southern Company is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Prudential Financial and Southern Company

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

The idea behind Prudential Financial 4125 and Southern Company Series 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.