Correlation Between Prudential PLC and Manulife Financial

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

By analyzing existing cross correlation between Prudential PLC ADR and Manulife Financial, you can compare the effects of market volatilities on Prudential PLC and Manulife Financial 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 PLC with a short position of Manulife Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential PLC and Manulife Financial.

Diversification Opportunities for Prudential PLC and Manulife Financial

-0.3

Correlation Coefficient

Prudential PLC  Manulife Financial

Very good diversification

The 3 months correlation between Prudential and Manulife is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Prudential PLC ADR and Manulife Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Manulife Financial and Prudential PLC 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 PLC ADR are associated (or correlated) with Manulife Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Manulife Financial has no effect on the direction of Prudential PLC i.e., Prudential PLC and Manulife Financial go up and down completely randomly.

Pair Corralation between Prudential PLC and Manulife Financial

Considering the 90-day investment horizon Prudential PLC is expected to generate 2.12 times less return on investment than Manulife Financial. In addition to that, Prudential PLC is 10.69 times more volatile than Manulife Financial. It trades about 0.01 of its total potential returns per unit of risk. Manulife Financial is currently generating about 0.13 per unit of volatility. If you would invest  1,377  in Manulife Financial on September 14, 2024 and sell it today you would earn a total of  23.00  from holding Manulife Financial or generate 1.67% return on investment over 90 days.

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

Prudential PLC ADR  vs.  Manulife Financial

Prudential PLC ADR

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Prudential PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Prudential PLC is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Manulife Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Manulife Financial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Manulife Financial 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 PLC and Manulife Financial

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

The idea behind Prudential PLC ADR and Manulife Financial 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.