Correlation Between Prudential Financial and Ford

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

By analyzing existing cross correlation between Prudential Financial 5950 and Ford Motor, you can compare the effects of market volatilities on Prudential Financial and Ford 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 Ford. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Financial and Ford.

Diversification Opportunities for Prudential Financial and Ford

0.47

Correlation Coefficient

Prudential Financial  Ford

Very weak diversification

The 3 months correlation between Prudential and Ford is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial 5950 and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor 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 5950 are associated (or correlated) with Ford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ford Motor has no effect on the direction of Prudential Financial i.e., Prudential Financial and Ford go up and down completely randomly.

Pair Corralation between Prudential Financial and Ford

Considering the 90-day investment horizon Prudential Financial 5950 is expected to generate 1.59 times more return on investment than Ford. However, Prudential Financial is 1.59 times more volatile than Ford Motor. It trades about -0.16 of its potential returns per unit of risk. Ford Motor is currently generating about -0.4 per unit of risk. If you would invest  2,560  in Prudential Financial 5950 on September 27, 2024 and sell it today you would lose (55.74) from holding Prudential Financial 5950 or give up 2.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Prudential Financial 5950  vs.  Ford Motor

Prudential Financial 5950

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Financial 5950 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Prudential Financial is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Ford Motor

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Prudential Financial and Ford

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

The idea behind Prudential Financial 5950 and Ford Motor 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 Transaction History module to view history of all your transactions and understand their impact on performance.