Correlation Between Alleghany and Prudential Financial

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

Diversification Opportunities for Alleghany and Prudential Financial

0.72
  Correlation Coefficient

Poor diversification

The 3 months correlation between Alleghany and Prudential is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Alleghany and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial and Alleghany 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 Alleghany 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 Alleghany i.e., Alleghany and Prudential Financial go up and down completely randomly.

Pair Corralation between Alleghany and Prudential Financial

Taking into account the 90-day investment horizon Alleghany is expected to generate 3.18 times less return on investment than Prudential Financial. But when comparing it to its historical volatility, Alleghany is 9.46 times less risky than Prudential Financial. It trades about 0.11 of its potential returns per unit of risk. Prudential Financial is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  9,498  in Prudential Financial on December 30, 2023 and sell it today you would earn a total of  2,242  from holding Prudential Financial or generate 23.6% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy24.0%
ValuesDaily Returns

Alleghany  vs.  Prudential Financial

 Performance 
       Timeline  
Alleghany 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Alleghany has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Alleghany is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
Prudential Financial 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Prudential Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Alleghany and Prudential Financial Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alleghany and Prudential Financial

The main advantage of trading using opposite Alleghany and Prudential Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alleghany 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.
The idea behind Alleghany and Prudential Financial 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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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..

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