Correlation Between Prudential PLC and Genworth Financial

Can any of the company-specific risk be diversified away by investing in both Prudential PLC and Genworth Financial 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 Genworth Financial 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 Genworth Financial, you can compare the effects of market volatilities on Prudential PLC and Genworth Financial 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 Genworth Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential PLC and Genworth Financial.

Diversification Opportunities for Prudential PLC and Genworth Financial

-0.11

Correlation Coefficient

Prudential PLC  Genworth Financial

Good diversification

The 3 months correlation between Prudential and Genworth is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Prudential PLC ADR and Genworth Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Genworth Financial 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 Genworth Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Genworth Financial has no effect on the direction of Prudential PLC i.e., Prudential PLC and Genworth Financial go up and down completely randomly.

Pair Corralation between Prudential PLC and Genworth Financial

Considering the 90-day investment horizon Prudential PLC ADR is expected to generate 1.08 times more return on investment than Genworth Financial. However, Prudential PLC is 1.08 times more volatile than Genworth Financial. It trades about 0.27 of its potential returns per unit of risk. Genworth Financial is currently generating about 0.03 per unit of risk. If you would invest  1,561  in Prudential PLC ADR on December 30, 2024 and sell it today you would earn a total of  582.00  from holding Prudential PLC ADR or generate 37.28% return on investment over 90 days.

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

Prudential PLC ADR  vs.  Genworth Financial

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.

Genworth Financial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Genworth Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Genworth Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Prudential PLC and Genworth Financial

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

The idea behind Prudential PLC ADR and Genworth Financial 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.