Correlation Between Prudential Financial and China Life

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

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

Diversification Opportunities for Prudential Financial and China Life

0.45

Correlation Coefficient

Prudential Financial  China Life

Very weak diversification

The 3 months correlation between Prudential and China is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and China Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Life Insurance 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 China Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Life Insurance has no effect on the direction of Prudential Financial i.e., Prudential Financial and China Life go up and down completely randomly.

Pair Corralation between Prudential Financial and China Life

Considering the 90-day investment horizon Prudential Financial is expected to generate 9.65 times less return on investment than China Life. But when comparing it to its historical volatility, Prudential Financial is 3.47 times less risky than China Life. It trades about 0.04 of its potential returns per unit of risk. China Life Insurance is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  146.00  in China Life Insurance on September 14, 2024 and sell it today you would earn a total of  52.00  from holding China Life Insurance or generate 35.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Prudential Financial  vs.  China Life Insurance

Prudential Financial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Prudential Financial is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

China Life Insurance

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Life Insurance are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking indicators, China Life reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prudential Financial and China Life

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

The idea behind Prudential Financial and China Life Insurance 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.

Check out your portfolio center.

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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.