Correlation Between Prudential PLC and AIA

Can any of the company-specific risk be diversified away by investing in both Prudential PLC and AIA 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 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 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. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential PLC and AIA.

Diversification Opportunities for Prudential PLC and AIA

0.73

Correlation Coefficient

Prudential PLC  AIA

Poor diversification

The 3 months correlation between Prudential and AIA is 0.73. 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. 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 go up and down completely randomly.

Pair Corralation between Prudential PLC and AIA

Considering the 90-day investment horizon Prudential PLC ADR is expected to generate 0.42 times more return on investment than AIA. However, Prudential PLC ADR is 2.4 times less risky than AIA. It trades about 0.28 of its potential returns per unit of risk. AIA Group is currently generating about 0.06 per unit of risk. If you would invest  1,585  in Prudential PLC ADR on December 28, 2024 and sell it today you would earn a total of  607.00  from holding Prudential PLC ADR or generate 38.3% return on investment over 90 days.

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

Prudential PLC ADR  vs.  AIA Group

Prudential PLC ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential PLC ADR are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Prudential PLC disclosed solid returns over the last few months and may actually be approaching a breakup point.

AIA Group

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AIA Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, AIA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prudential PLC and AIA

The main advantage of trading using opposite Prudential PLC and AIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential PLC position performs unexpectedly, AIA 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 will offset losses from the drop in AIA'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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.