Correlation Between Prudential Financial and Exxon

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

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

Diversification Opportunities for Prudential Financial and Exxon

-0.46

Correlation Coefficient

Prudential Financial  Exxon

Very good diversification

The 3 months correlation between Prudential and Exxon is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and Exxon Mobil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil 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 Exxon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxon Mobil has no effect on the direction of Prudential Financial i.e., Prudential Financial and Exxon go up and down completely randomly.

Pair Corralation between Prudential Financial and Exxon

Assuming the 90 days trading horizon Prudential Financial is expected to generate 2.04 times less return on investment than Exxon. But when comparing it to its historical volatility, Prudential Financial is 5.23 times less risky than Exxon. It trades about 0.13 of its potential returns per unit of risk. Exxon Mobil is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  195,209  in Exxon Mobil on October 8, 2024 and sell it today you would earn a total of  25,891  from holding Exxon Mobil or generate 13.26% return on investment over 90 days.

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

Prudential Financial  vs.  Exxon Mobil

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.

Exxon Mobil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Exxon Mobil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Prudential Financial and Exxon

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

The idea behind Prudential Financial and Exxon Mobil 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.