Correlation Between GM and Prudential
Can any of the company-specific risk be diversified away by investing in both GM and Prudential 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 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 E Bond, you can compare the effects of market volatilities on GM and Prudential 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. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Prudential.
Diversification Opportunities for GM and Prudential
-0.8 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between GM and Prudential is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Prudential E Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential E Bond 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. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential E Bond has no effect on the direction of GM i.e., GM and Prudential go up and down completely randomly.
Pair Corralation between GM and Prudential
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Prudential. In addition to that, GM is 8.35 times more volatile than Prudential E Bond. It trades about -0.14 of its total potential returns per unit of risk. Prudential E Bond is currently generating about 0.05 per unit of volatility. If you would invest 871.00 in Prudential E Bond on September 12, 2024 and sell it today you would earn a total of 3.00 from holding Prudential E Bond or generate 0.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Prudential E Bond
Performance |
| Timeline |
| General Motors |
| Prudential E Bond |
GM and Prudential Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Prudential
The main advantage of trading using opposite GM and Prudential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Prudential 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 will offset losses from the drop in Prudential's long position.The idea behind General Motors and Prudential E Bond 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.| Prudential vs. Qs Moderate Growth | Prudential vs. Sa Worldwide Moderate | Prudential vs. Blackrock Moderate Prepared | Prudential vs. Fidelity Managed Retirement |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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