Correlation Between Prudential Financial and Metropolitan West
Can any of the company-specific risk be diversified away by investing in both Prudential Financial and Metropolitan West 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 Metropolitan West into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prudential Financial Services and Metropolitan West Flexible, you can compare the effects of market volatilities on Prudential Financial and Metropolitan West 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 Metropolitan West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Financial and Metropolitan West.
Diversification Opportunities for Prudential Financial and Metropolitan West
0.0 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between PRUDENTIAL and Metropolitan is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial Services and Metropolitan West Flexible in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan West 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 Services are associated (or correlated) with Metropolitan West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metropolitan West has no effect on the direction of Prudential Financial i.e., Prudential Financial and Metropolitan West go up and down completely randomly.
Pair Corralation between Prudential Financial and Metropolitan West
Assuming the 90 days horizon Prudential Financial is expected to generate 11.42 times less return on investment than Metropolitan West. But when comparing it to its historical volatility, Prudential Financial Services is 24.13 times less risky than Metropolitan West. It trades about 0.14 of its potential returns per unit of risk. Metropolitan West Flexible is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 726.00 in Metropolitan West Flexible on September 4, 2024 and sell it today you would earn a total of 3,107 from holding Metropolitan West Flexible or generate 427.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Prudential Financial Services vs. Metropolitan West Flexible
Performance |
| Timeline |
| Prudential Financial |
| Metropolitan West |
Prudential Financial and Metropolitan West Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prudential Financial and Metropolitan West
The main advantage of trading using opposite Prudential Financial and Metropolitan West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Financial position performs unexpectedly, Metropolitan West 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 Metropolitan West will offset losses from the drop in Metropolitan West's long position.The idea behind Prudential Financial Services and Metropolitan West Flexible 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.
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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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