Correlation Between Prudential Financial and Solstad Offshore
Can any of the company-specific risk be diversified away by investing in both Prudential Financial and Solstad Offshore 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 Solstad Offshore into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prudential Financial and Solstad Offshore ASA, you can compare the effects of market volatilities on Prudential Financial and Solstad Offshore 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 Solstad Offshore. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Financial and Solstad Offshore.
Diversification Opportunities for Prudential Financial and Solstad Offshore
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Prudential and Solstad is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and Solstad Offshore ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solstad Offshore ASA 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 Solstad Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solstad Offshore ASA has no effect on the direction of Prudential Financial i.e., Prudential Financial and Solstad Offshore go up and down completely randomly.
Pair Corralation between Prudential Financial and Solstad Offshore
Assuming the 90 days trading horizon Prudential Financial is expected to generate 0.85 times more return on investment than Solstad Offshore. However, Prudential Financial is 1.18 times less risky than Solstad Offshore. It trades about -0.17 of its potential returns per unit of risk. Solstad Offshore ASA is currently generating about -0.2 per unit of risk. If you would invest 11,755 in Prudential Financial on November 28, 2024 and sell it today you would lose (670.00) from holding Prudential Financial or give up 5.7% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Prudential Financial vs. Solstad Offshore ASA
Performance |
| Timeline |
| Prudential Financial |
| Solstad Offshore ASA |
Prudential Financial and Solstad Offshore Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prudential Financial and Solstad Offshore
The main advantage of trading using opposite Prudential Financial and Solstad Offshore positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Financial position performs unexpectedly, Solstad Offshore 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 Solstad Offshore will offset losses from the drop in Solstad Offshore's long position.The idea behind Prudential Financial and Solstad Offshore ASA 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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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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