Correlation Between Prudential Financial and Cable One

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

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

Diversification Opportunities for Prudential Financial and Cable One

0.88

Correlation Coefficient

Prudential Financial  Cable One

Very poor diversification

The 3 months correlation between Prudential and Cable is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and Cable One in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cable One 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 Cable One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cable One has no effect on the direction of Prudential Financial i.e., Prudential Financial and Cable One go up and down completely randomly.

Pair Corralation between Prudential Financial and Cable One

Assuming the 90 days trading horizon Prudential Financial is expected to generate 1.54 times less return on investment than Cable One. But when comparing it to its historical volatility, Prudential Financial is 1.36 times less risky than Cable One. It trades about 0.18 of its potential returns per unit of risk. Cable One is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  966.00  in Cable One on September 5, 2024 and sell it today you would earn a total of  278.00  from holding Cable One or generate 28.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.77%
Values	Daily Returns

Prudential Financial  vs.  Cable One

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.

Cable One

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cable One are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Cable One sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prudential Financial and Cable One

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

The idea behind Prudential Financial and Cable One 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.