Correlation Between GM and Prudential Jennison

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Can any of the company-specific risk be diversified away by investing in both GM and Prudential Jennison 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 GM and Prudential Jennison into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Prudential Jennison Small, you can compare the effects of market volatilities on GM and Prudential Jennison 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 GM with a short position of Prudential Jennison. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Prudential Jennison.

Diversification Opportunities for GM and Prudential Jennison

0.82
  Correlation Coefficient

Very poor diversification

The 3 months correlation between GM and Prudential is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Prudential Jennison Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Jennison Small and GM 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 General Motors are associated (or correlated) with Prudential Jennison. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Jennison Small has no effect on the direction of GM i.e., GM and Prudential Jennison go up and down completely randomly.

Pair Corralation between GM and Prudential Jennison

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.88 times more return on investment than Prudential Jennison. However, GM is 1.88 times more volatile than Prudential Jennison Small. It trades about 0.12 of its potential returns per unit of risk. Prudential Jennison Small is currently generating about 0.11 per unit of risk. If you would invest  3,849  in General Motors on August 28, 2024 and sell it today you would earn a total of  2,171  from holding General Motors or generate 56.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy99.52%
ValuesDaily Returns

General Motors  vs.  Prudential Jennison Small

 Performance 
       Timeline  
General Motors 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.
Prudential Jennison Small 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Jennison Small are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Prudential Jennison may actually be approaching a critical reversion point that can send shares even higher in December 2024.

GM and Prudential Jennison Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GM and Prudential Jennison

The main advantage of trading using opposite GM and Prudential Jennison positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Prudential Jennison 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 Jennison will offset losses from the drop in Prudential Jennison's long position.
The idea behind General Motors and Prudential Jennison Small 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.

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