Correlation Between Prudential Financial and Telefnica

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

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

Diversification Opportunities for Prudential Financial and Telefnica

0.8

Correlation Coefficient

Prudential Financial  Telefnica

Very poor diversification

The 3 months correlation between Prudential and Telefnica is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and Telefnica SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefnica SA 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 Telefnica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefnica SA has no effect on the direction of Prudential Financial i.e., Prudential Financial and Telefnica go up and down completely randomly.

Pair Corralation between Prudential Financial and Telefnica

If you would invest  8,537  in Telefnica SA on September 25, 2024 and sell it today you would earn a total of  323.00  from holding Telefnica SA or generate 3.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

Prudential Financial  vs.  Telefnica SA

Prudential Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Prudential Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Telefnica SA

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Telefnica SA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Telefnica may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Prudential Financial and Telefnica

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

The idea behind Prudential Financial and Telefnica SA 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.