Correlation Between Playtech Plc and Prudential Financial

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

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

Diversification Opportunities for Playtech Plc and Prudential Financial

0.08

Correlation Coefficient

Playtech Plc  Prudential Financial

Significant diversification

The 3 months correlation between Playtech and Prudential is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Playtech plc and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial and Playtech 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 Playtech plc are associated (or correlated) with Prudential Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Financial has no effect on the direction of Playtech Plc i.e., Playtech Plc and Prudential Financial go up and down completely randomly.

Pair Corralation between Playtech Plc and Prudential Financial

Assuming the 90 days trading horizon Playtech Plc is expected to generate 1.23 times less return on investment than Prudential Financial. But when comparing it to its historical volatility, Playtech plc is 1.2 times less risky than Prudential Financial. It trades about 0.11 of its potential returns per unit of risk. Prudential Financial is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  10,446  in Prudential Financial on September 15, 2024 and sell it today you would earn a total of  1,019  from holding Prudential Financial or generate 9.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.48%
Values	Daily Returns

Playtech plc  vs.  Prudential Financial

Playtech plc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Playtech plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Playtech Plc may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Prudential Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Prudential Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Playtech Plc and Prudential Financial

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

The idea behind Playtech plc and Prudential Financial 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.