Correlation Between Prudential Financial and Bayerische Motoren

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

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

Diversification Opportunities for Prudential Financial and Bayerische Motoren

0.1

Correlation Coefficient

Prudential Financial  Bayerische Motoren

Average diversification

The 3 months correlation between Prudential and Bayerische is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and Bayerische Motoren Werke in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayerische Motoren Werke 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 Bayerische Motoren. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bayerische Motoren Werke has no effect on the direction of Prudential Financial i.e., Prudential Financial and Bayerische Motoren go up and down completely randomly.

Pair Corralation between Prudential Financial and Bayerische Motoren

Assuming the 90 days trading horizon Prudential Financial is expected to generate 6.33 times less return on investment than Bayerische Motoren. But when comparing it to its historical volatility, Prudential Financial is 9.86 times less risky than Bayerische Motoren. It trades about 0.13 of its potential returns per unit of risk. Bayerische Motoren Werke is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  149,698  in Bayerische Motoren Werke on September 16, 2024 and sell it today you would earn a total of  11,724  from holding Bayerische Motoren Werke or generate 7.83% return on investment over 90 days.

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

Prudential Financial  vs.  Bayerische Motoren Werke

Prudential Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Prudential Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bayerische Motoren Werke

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bayerische Motoren Werke are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bayerische Motoren may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Prudential Financial and Bayerische Motoren

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

The idea behind Prudential Financial and Bayerische Motoren Werke 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.