Correlation Between Prudential Financial and NovaGold Resources

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

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

Diversification Opportunities for Prudential Financial and NovaGold Resources

0.16

Correlation Coefficient

Prudential Financial  NovaGold Resources

Average diversification

The 3 months correlation between Prudential and NovaGold is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and NovaGold Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NovaGold Resources 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 NovaGold Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NovaGold Resources has no effect on the direction of Prudential Financial i.e., Prudential Financial and NovaGold Resources go up and down completely randomly.

Pair Corralation between Prudential Financial and NovaGold Resources

Considering the 90-day investment horizon Prudential Financial is expected to under-perform the NovaGold Resources. But the stock apears to be less risky and, when comparing its historical volatility, Prudential Financial is 6.94 times less risky than NovaGold Resources. The stock trades about 0.0 of its potential returns per unit of risk. The NovaGold Resources is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  383.00  in NovaGold Resources on September 5, 2024 and sell it today you would lose (9.00) from holding NovaGold Resources or give up 2.35% of portfolio value over 90 days.

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

Prudential Financial  vs.  NovaGold Resources

Prudential Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Prudential Financial is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

NovaGold Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NovaGold Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, NovaGold Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Prudential Financial and NovaGold Resources

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

The idea behind Prudential Financial and NovaGold Resources 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.