Correlation Between Mercantile Investment and Prudential Plc

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

By analyzing existing cross correlation between The Mercantile Investment and Prudential plc, you can compare the effects of market volatilities on Mercantile Investment and Prudential Plc 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 Mercantile Investment with a short position of Prudential Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mercantile Investment and Prudential Plc.

Diversification Opportunities for Mercantile Investment and Prudential Plc

0.28

Correlation Coefficient

Mercantile Investment  Prudential Plc

Modest diversification

The 3 months correlation between Mercantile and Prudential is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding The Mercantile Investment and Prudential plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential plc and Mercantile Investment 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 The Mercantile Investment are associated (or correlated) with Prudential Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential plc has no effect on the direction of Mercantile Investment i.e., Mercantile Investment and Prudential Plc go up and down completely randomly.

Pair Corralation between Mercantile Investment and Prudential Plc

Assuming the 90 days trading horizon The Mercantile Investment is expected to under-perform the Prudential Plc. But the stock apears to be less risky and, when comparing its historical volatility, The Mercantile Investment is 2.03 times less risky than Prudential Plc. The stock trades about -0.1 of its potential returns per unit of risk. The Prudential plc is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  63,860  in Prudential plc on September 22, 2024 and sell it today you would lose (1,020) from holding Prudential plc or give up 1.6% of portfolio value over 90 days.

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

The Mercantile Investment  vs.  Prudential plc

The Mercantile Investment

Risk-Adjusted Performance

0 of 100

Very Weak

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

Prudential plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Prudential Plc is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Mercantile Investment and Prudential Plc

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

The idea behind The Mercantile Investment and Prudential plc 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.