Correlation Between Vanguard Financials and Prudential Financial

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

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

Diversification Opportunities for Vanguard Financials and Prudential Financial

0.97

Correlation Coefficient

Vanguard Financials  Prudential Financial

Almost no diversification

The 3 months correlation between Vanguard and Prudential is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Prudential Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial and Vanguard Financials 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 Vanguard Financials Index are associated (or correlated) with Prudential Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Financial has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Prudential Financial go up and down completely randomly.

Pair Corralation between Vanguard Financials and Prudential Financial

Assuming the 90 days horizon Vanguard Financials Index is expected to generate 1.0 times more return on investment than Prudential Financial. However, Vanguard Financials is 1.0 times more volatile than Prudential Financial Services. It trades about 0.19 of its potential returns per unit of risk. Prudential Financial Services is currently generating about 0.15 per unit of risk. If you would invest  5,386  in Vanguard Financials Index on September 13, 2024 and sell it today you would earn a total of  764.00  from holding Vanguard Financials Index or generate 14.18% return on investment over 90 days.

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

Vanguard Financials Index  vs.  Prudential Financial Services

Vanguard Financials Index

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Financials showed solid returns over the last few months and may actually be approaching a breakup point.

Prudential Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial Services are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Prudential Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Financials and Prudential Financial

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

The idea behind Vanguard Financials Index and Prudential Financial Services 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..