Correlation Between Prudential Financial and United Airlines

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

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

Diversification Opportunities for Prudential Financial and United Airlines

0.93

Correlation Coefficient

Prudential Financial  United Airlines

Almost no diversification

The 3 months correlation between Prudential and United is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and United Airlines Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Airlines Holdings 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 United Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Airlines Holdings has no effect on the direction of Prudential Financial i.e., Prudential Financial and United Airlines go up and down completely randomly.

Pair Corralation between Prudential Financial and United Airlines

Assuming the 90 days trading horizon Prudential Financial is expected to generate 1.67 times less return on investment than United Airlines. In addition to that, Prudential Financial is 1.01 times more volatile than United Airlines Holdings. It trades about 0.06 of its total potential returns per unit of risk. United Airlines Holdings is currently generating about 0.1 per unit of volatility. If you would invest  10,050  in United Airlines Holdings on September 24, 2024 and sell it today you would earn a total of  19,849  from holding United Airlines Holdings or generate 197.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	70.54%
Values	Daily Returns

Prudential Financial  vs.  United Airlines Holdings

Prudential Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 13 (%) 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.

United Airlines Holdings

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, United Airlines sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prudential Financial and United Airlines

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

The idea behind Prudential Financial and United Airlines Holdings 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.