Correlation Between Prudential Financial and Great-West Lifeco

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

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

Diversification Opportunities for Prudential Financial and Great-West Lifeco

-0.66

Correlation Coefficient

Prudential Financial  Great-West Lifeco

Excellent diversification

The 3 months correlation between Prudential and Great-West is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and Great West Lifeco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great West Lifeco 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 Great-West Lifeco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great West Lifeco has no effect on the direction of Prudential Financial i.e., Prudential Financial and Great-West Lifeco go up and down completely randomly.

Pair Corralation between Prudential Financial and Great-West Lifeco

Assuming the 90 days horizon Prudential Financial is expected to under-perform the Great-West Lifeco. But the stock apears to be less risky and, when comparing its historical volatility, Prudential Financial is 1.18 times less risky than Great-West Lifeco. The stock trades about -0.09 of its potential returns per unit of risk. The Great West Lifeco is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,105  in Great West Lifeco on December 23, 2024 and sell it today you would earn a total of  315.00  from holding Great West Lifeco or generate 10.14% return on investment over 90 days.

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

Prudential Financial  vs.  Great West Lifeco

Prudential Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prudential Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Great West Lifeco

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Great West Lifeco are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Great-West Lifeco may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Prudential Financial and Great-West Lifeco

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

The idea behind Prudential Financial and Great West Lifeco 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.