Correlation Between SANTANDER and Prudential Financial

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

By analyzing existing cross correlation between SANTANDER UK 10 and Prudential Financial, you can compare the effects of market volatilities on SANTANDER and Prudential 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 SANTANDER with a short position of Prudential Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of SANTANDER and Prudential Financial.

Diversification Opportunities for SANTANDER and Prudential Financial

0.4

Correlation Coefficient

SANTANDER  Prudential Financial

Very weak diversification

The 3 months correlation between SANTANDER and Prudential is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding SANTANDER UK 10 and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial and SANTANDER 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 SANTANDER UK 10 are associated (or correlated) with Prudential Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Financial has no effect on the direction of SANTANDER i.e., SANTANDER and Prudential Financial go up and down completely randomly.

Pair Corralation between SANTANDER and Prudential Financial

Assuming the 90 days trading horizon SANTANDER is expected to generate 26.28 times less return on investment than Prudential Financial. But when comparing it to its historical volatility, SANTANDER UK 10 is 5.5 times less risky than Prudential Financial. It trades about 0.01 of its potential returns per unit of risk. Prudential Financial is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  11,439  in Prudential Financial on September 12, 2024 and sell it today you would earn a total of  680.00  from holding Prudential Financial or generate 5.94% return on investment over 90 days.

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

SANTANDER UK 10  vs.  Prudential Financial

SANTANDER UK 10

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SANTANDER UK 10 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, SANTANDER is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Prudential Financial

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Prudential Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SANTANDER and Prudential Financial

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

The idea behind SANTANDER UK 10 and Prudential 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.