Correlation Between Prudential Financial and American Funds

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

By analyzing existing cross correlation between Prudential Financial Services and American Funds 2035, you can compare the effects of market volatilities on Prudential Financial and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Financial and American Funds.

Diversification Opportunities for Prudential Financial and American Funds

0.58

Correlation Coefficient

Prudential Financial  American Funds

Very weak diversification

The 3 months correlation between PRUDENTIAL and AMERICAN is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial Services and American Funds 2035 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2035 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 Services are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds 2035 has no effect on the direction of Prudential Financial i.e., Prudential Financial and American Funds go up and down completely randomly.

Pair Corralation between Prudential Financial and American Funds

Assuming the 90 days horizon Prudential Financial Services is expected to generate 2.6 times more return on investment than American Funds. However, Prudential Financial is 2.6 times more volatile than American Funds 2035. It trades about 0.19 of its potential returns per unit of risk. American Funds 2035 is currently generating about 0.16 per unit of risk. If you would invest  2,263  in Prudential Financial Services on September 5, 2024 and sell it today you would earn a total of  331.00  from holding Prudential Financial Services or generate 14.63% return on investment over 90 days.

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

Prudential Financial Services  vs.  American Funds 2035

Prudential Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial Services are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Prudential Financial showed solid returns over the last few months and may actually be approaching a breakup point.

American Funds 2035

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds 2035 are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Prudential Financial and American Funds

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

The idea behind Prudential Financial Services and American Funds 2035 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.