Correlation Between Prudential Financial and Westlake Chemical

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

Diversification Opportunities for Prudential Financial and Westlake Chemical

-0.71

Correlation Coefficient

Prudential Financial  Westlake Chemical

Pay attention - limited upside

The 3 months correlation between Prudential and Westlake is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial 4125 and Westlake Chemical Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westlake Chemical 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 Westlake Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westlake Chemical has no effect on the direction of Prudential Financial i.e., Prudential Financial and Westlake Chemical go up and down completely randomly.

Pair Corralation between Prudential Financial and Westlake Chemical

Considering the 90-day investment horizon Prudential Financial 4125 is expected to under-perform the Westlake Chemical. In addition to that, Prudential Financial is 1.4 times more volatile than Westlake Chemical Partners. It trades about -0.01 of its total potential returns per unit of risk. Westlake Chemical Partners is currently generating about 0.18 per unit of volatility. If you would invest  2,226  in Westlake Chemical Partners on September 3, 2024 and sell it today you would earn a total of  151.00  from holding Westlake Chemical Partners or generate 6.78% return on investment over 90 days.

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

Prudential Financial 4125  vs.  Westlake Chemical Partners

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.

Westlake Chemical

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Westlake Chemical Partners are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent forward-looking signals, Westlake Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Prudential Financial and Westlake Chemical

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

The idea behind Prudential Financial 4125 and Westlake Chemical Partners 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.

Check out your portfolio center.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.