Correlation Between Prudential Financial and Berkshire Hathaway
Can any of the company-specific risk be diversified away by investing in both Prudential Financial and Berkshire Hathaway 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 Berkshire Hathaway into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prudential Financial and Berkshire Hathaway, you can compare the effects of market volatilities on Prudential Financial and Berkshire Hathaway 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 Berkshire Hathaway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Financial and Berkshire Hathaway.
Diversification Opportunities for Prudential Financial and Berkshire Hathaway
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Prudential and Berkshire is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and Berkshire Hathaway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway 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 Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway has no effect on the direction of Prudential Financial i.e., Prudential Financial and Berkshire Hathaway go up and down completely randomly.
Pair Corralation between Prudential Financial and Berkshire Hathaway
Assuming the 90 days trading horizon Prudential Financial is expected to generate 5.26 times less return on investment than Berkshire Hathaway. But when comparing it to its historical volatility, Prudential Financial is 6.27 times less risky than Berkshire Hathaway. It trades about 0.22 of its potential returns per unit of risk. Berkshire Hathaway is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 918,900 in Berkshire Hathaway on September 2, 2024 and sell it today you would earn a total of 66,100 from holding Berkshire Hathaway or generate 7.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Prudential Financial vs. Berkshire Hathaway
Performance |
| Timeline |
| Prudential Financial |
| Berkshire Hathaway |
Prudential Financial and Berkshire Hathaway Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prudential Financial and Berkshire Hathaway
The main advantage of trading using opposite Prudential Financial and Berkshire Hathaway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Financial position performs unexpectedly, Berkshire Hathaway 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 Berkshire Hathaway will offset losses from the drop in Berkshire Hathaway's long position.| Prudential Financial vs. First Republic Bank | Prudential Financial vs. Deutsche Bank Aktiengesellschaft | Prudential Financial vs. Cognizant Technology Solutions | Prudential Financial vs. Southwest Airlines |
| Berkshire Hathaway vs. FibraHotel | Berkshire Hathaway vs. Martin Marietta Materials | Berkshire Hathaway vs. Prudential Financial | Berkshire Hathaway vs. Southern Copper |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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