Correlation Between Prudential Financial and Apartment Investment

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

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

Diversification Opportunities for Prudential Financial and Apartment Investment

0.72

Correlation Coefficient

Prudential Financial  Apartment Investment

Poor diversification

The 3 months correlation between Prudential and Apartment is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and Apartment Investment and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Apartment Investment and and Prudential Financial 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 Financial are associated (or correlated) with Apartment Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Apartment Investment and has no effect on the direction of Prudential Financial i.e., Prudential Financial and Apartment Investment go up and down completely randomly.

Pair Corralation between Prudential Financial and Apartment Investment

Assuming the 90 days trading horizon Prudential Financial is expected to generate 0.92 times more return on investment than Apartment Investment. However, Prudential Financial is 1.08 times less risky than Apartment Investment. It trades about 0.18 of its potential returns per unit of risk. Apartment Investment and is currently generating about 0.03 per unit of risk. If you would invest  32,340  in Prudential Financial on September 28, 2024 and sell it today you would earn a total of  6,150  from holding Prudential Financial or generate 19.02% return on investment over 90 days.

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

Prudential Financial  vs.  Apartment Investment and

Prudential Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Prudential Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Apartment Investment and

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Apartment Investment and are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, Apartment Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Prudential Financial and Apartment Investment

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

The idea behind Prudential Financial and Apartment Investment and 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.