Correlation Between Prudential Financial and AMP

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

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

Diversification Opportunities for Prudential Financial and AMP

0.74

Correlation Coefficient

Prudential Financial  AMP

Poor diversification

The 3 months correlation between Prudential and AMP is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and AMP Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMP Limited 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 are associated (or correlated) with AMP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMP Limited has no effect on the direction of Prudential Financial i.e., Prudential Financial and AMP go up and down completely randomly.

Pair Corralation between Prudential Financial and AMP

Assuming the 90 days horizon Prudential Financial is expected to generate 1.85 times less return on investment than AMP. But when comparing it to its historical volatility, Prudential Financial is 2.17 times less risky than AMP. It trades about 0.14 of its potential returns per unit of risk. AMP Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  78.00  in AMP Limited on September 12, 2024 and sell it today you would earn a total of  17.00  from holding AMP Limited or generate 21.79% return on investment over 90 days.

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

Prudential Financial  vs.  AMP Limited

Prudential Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Prudential Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

AMP Limited

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AMP Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, AMP reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prudential Financial and AMP

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

The idea behind Prudential Financial and AMP Limited 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.