Correlation Between Prudential Plc and Great-West Lifeco

Can any of the company-specific risk be diversified away by investing in both Prudential Plc 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 Plc 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 plc and Great West Lifeco, you can compare the effects of market volatilities on Prudential Plc 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 Plc with a short position of Great-West Lifeco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Plc and Great-West Lifeco.

Diversification Opportunities for Prudential Plc and Great-West Lifeco

0.79

Correlation Coefficient

Prudential Plc  Great-West Lifeco

Poor diversification

The 3 months correlation between Prudential and Great-West is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Prudential plc 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 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 Prudential plc 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 Plc i.e., Prudential Plc and Great-West Lifeco go up and down completely randomly.

Pair Corralation between Prudential Plc and Great-West Lifeco

Assuming the 90 days horizon Prudential plc is expected to generate 1.01 times more return on investment than Great-West Lifeco. However, Prudential Plc is 1.01 times more volatile than Great West Lifeco. It trades about 0.2 of its potential returns per unit of risk. Great West Lifeco is currently generating about 0.09 per unit of risk. If you would invest  765.00  in Prudential plc on December 24, 2024 and sell it today you would earn a total of  190.00  from holding Prudential plc or generate 24.84% return on investment over 90 days.

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

Prudential plc  vs.  Great West Lifeco

Prudential plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential plc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Prudential Plc reported solid returns over the last few months and may actually be approaching a breakup point.

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 uncertain 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 Plc and Great-West Lifeco

The main advantage of trading using opposite Prudential Plc and Great-West Lifeco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Plc 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 plc 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.