Correlation Between Associated British and Prudential Financial
Can any of the company-specific risk be diversified away by investing in both Associated British 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 Associated British and Prudential Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Associated British Foods and Prudential Financial, you can compare the effects of market volatilities on Associated British 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 Associated British with a short position of Prudential Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated British and Prudential Financial.
Diversification Opportunities for Associated British and Prudential Financial
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between Associated and Prudential is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial and Associated British 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 Associated British Foods 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 Associated British i.e., Associated British and Prudential Financial go up and down completely randomly.
Pair Corralation between Associated British and Prudential Financial
Assuming the 90 days trading horizon Associated British Foods is expected to generate 0.93 times more return on investment than Prudential Financial. However, Associated British Foods is 1.07 times less risky than Prudential Financial. It trades about -0.26 of its potential returns per unit of risk. Prudential Financial is currently generating about -0.36 per unit of risk. If you would invest 218,179 in Associated British Foods on September 24, 2024 and sell it today you would lose (13,379) from holding Associated British Foods or give up 6.13% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Associated British Foods vs. Prudential Financial
Performance |
| Timeline |
| Associated British Foods |
| Prudential Financial |
Associated British and Prudential Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Associated British and Prudential Financial
The main advantage of trading using opposite Associated British and Prudential Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Associated British 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.| Associated British vs. Aeorema Communications Plc | Associated British vs. MTI Wireless Edge | Associated British vs. British American Tobacco | Associated British vs. Molson Coors Beverage |
| Prudential Financial vs. Associated British Foods | Prudential Financial vs. Air Products Chemicals | Prudential Financial vs. AMG Advanced Metallurgical | Prudential Financial vs. Ecofin Global Utilities |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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