Correlation Between Wheaton Precious and Prudential Financial

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

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

Diversification Opportunities for Wheaton Precious and Prudential Financial

0.4

Correlation Coefficient

Wheaton Precious  Prudential Financial

Very weak diversification

The 3 months correlation between Wheaton and Prudential is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Wheaton Precious Metals and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial and Wheaton Precious 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 Wheaton Precious Metals 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 Wheaton Precious i.e., Wheaton Precious and Prudential Financial go up and down completely randomly.

Pair Corralation between Wheaton Precious and Prudential Financial

Assuming the 90 days trading horizon Wheaton Precious Metals is expected to generate 1.38 times more return on investment than Prudential Financial. However, Wheaton Precious is 1.38 times more volatile than Prudential Financial. It trades about -0.23 of its potential returns per unit of risk. Prudential Financial is currently generating about -0.36 per unit of risk. If you would invest  496,000  in Wheaton Precious Metals on September 25, 2024 and sell it today you would lose (39,000) from holding Wheaton Precious Metals or give up 7.86% of portfolio value over 90 days.

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

Wheaton Precious Metals  vs.  Prudential Financial

Wheaton Precious Metals

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wheaton Precious Metals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Wheaton Precious may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Prudential Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Prudential Financial is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Wheaton Precious and Prudential Financial

The main advantage of trading using opposite Wheaton Precious and Prudential Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wheaton Precious 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 Wheaton Precious Metals 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.