Correlation Between Basic Materials and Prudential Financial
Can any of the company-specific risk be diversified away by investing in both Basic Materials 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 Basic Materials and Prudential Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and Prudential Financial, you can compare the effects of market volatilities on Basic Materials 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 Basic Materials with a short position of Prudential Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Prudential Financial.
Diversification Opportunities for Basic Materials and Prudential Financial
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Basic and Prudential is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial and Basic Materials 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 Basic Materials 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 Basic Materials i.e., Basic Materials and Prudential Financial go up and down completely randomly.
Pair Corralation between Basic Materials and Prudential Financial
Assuming the 90 days trading horizon Basic Materials is expected to generate 0.51 times more return on investment than Prudential Financial. However, Basic Materials is 1.96 times less risky than Prudential Financial. It trades about -0.14 of its potential returns per unit of risk. Prudential Financial is currently generating about -0.24 per unit of risk. If you would invest 555,043 in Basic Materials on November 28, 2024 and sell it today you would lose (20,736) from holding Basic Materials or give up 3.74% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Basic Materials vs. Prudential Financial
Performance |
| Timeline |
Basic Materials and Prudential Financial Volatility Contrast
Predicted Return Density |
| Returns |
Basic Materials
Pair trading matchups for Basic Materials
Prudential Financial
Pair trading matchups for Prudential Financial
Pair Trading with Basic Materials and Prudential Financial
The main advantage of trading using opposite Basic Materials and Prudential Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials 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.| Basic Materials vs. United States Steel | Basic Materials vs. Monster Beverage | Basic Materials vs. Liberty Broadband | Basic Materials vs. Molson Coors Beverage |
| Prudential Financial vs. The Home Depot | Prudential Financial vs. Metalurgica Gerdau SA | Prudential Financial vs. Metalrgica Riosulense SA | Prudential Financial vs. CM Hospitalar SA |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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