Correlation Between Globe Life and Prudential Financial

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

By analyzing existing cross correlation between Globe Life 425 and Prudential Financial 4125, you can compare the effects of market volatilities on Globe Life 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 Globe Life with a short position of Prudential Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Globe Life and Prudential Financial.

Diversification Opportunities for Globe Life and Prudential Financial

0.88

Correlation Coefficient

Globe Life  Prudential Financial

Very poor diversification

The 3 months correlation between Globe and Prudential is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Globe Life 425 and Prudential Financial 4125 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial 4125 and Globe Life 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 Globe Life 425 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 4125 has no effect on the direction of Globe Life i.e., Globe Life and Prudential Financial go up and down completely randomly.

Pair Corralation between Globe Life and Prudential Financial

Assuming the 90 days horizon Globe Life 425 is expected to generate 1.54 times more return on investment than Prudential Financial. However, Globe Life is 1.54 times more volatile than Prudential Financial 4125. It trades about -0.11 of its potential returns per unit of risk. Prudential Financial 4125 is currently generating about -0.27 per unit of risk. If you would invest  1,812  in Globe Life 425 on September 21, 2024 and sell it today you would lose (154.00) from holding Globe Life 425 or give up 8.5% of portfolio value over 90 days.

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

Globe Life 425  vs.  Prudential Financial 4125

Globe Life 425

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Globe Life 425 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Preferred Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Prudential Financial 4125

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Financial 4125 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Globe Life and Prudential Financial

The main advantage of trading using opposite Globe Life and Prudential Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Globe Life 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 Globe Life 425 and Prudential Financial 4125 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.