Correlation Between Prudential PLC and AIA Group

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

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

Diversification Opportunities for Prudential PLC and AIA Group

0.41

Correlation Coefficient

Prudential PLC  AIA Group

Very weak diversification

The 3 months correlation between Prudential and AIA is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Prudential PLC ADR and AIA Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIA Group 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 ADR are associated (or correlated) with AIA Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIA Group has no effect on the direction of Prudential PLC i.e., Prudential PLC and AIA Group go up and down completely randomly.

Pair Corralation between Prudential PLC and AIA Group

Considering the 90-day investment horizon Prudential PLC ADR is expected to generate 0.42 times more return on investment than AIA Group. However, Prudential PLC ADR is 2.37 times less risky than AIA Group. It trades about 0.1 of its potential returns per unit of risk. AIA Group is currently generating about 0.03 per unit of risk. If you would invest  1,670  in Prudential PLC ADR on December 5, 2024 and sell it today you would earn a total of  183.00  from holding Prudential PLC ADR or generate 10.96% return on investment over 90 days.

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

Prudential PLC ADR  vs.  AIA Group

Prudential PLC ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential PLC ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Prudential PLC may actually be approaching a critical reversion point that can send shares even higher in April 2025.

AIA Group

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AIA Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, AIA Group may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Prudential PLC and AIA Group

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

The idea behind Prudential PLC ADR and AIA Group 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..