Correlation Between Prudential Plc and China Taiping

Can any of the company-specific risk be diversified away by investing in both Prudential Plc and China Taiping 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 Plc and China Taiping into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Prudential plc and China Taiping Insurance, you can compare the effects of market volatilities on Prudential Plc and China Taiping 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 Plc with a short position of China Taiping. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Plc and China Taiping.

Diversification Opportunities for Prudential Plc and China Taiping

-0.06

Correlation Coefficient

Prudential Plc  China Taiping

Good diversification

The 3 months correlation between Prudential and China is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Prudential plc and China Taiping Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Taiping Insurance and Prudential Plc 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 plc are associated (or correlated) with China Taiping. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Taiping Insurance has no effect on the direction of Prudential Plc i.e., Prudential Plc and China Taiping go up and down completely randomly.

Pair Corralation between Prudential Plc and China Taiping

Assuming the 90 days horizon Prudential Plc is expected to generate 124.84 times less return on investment than China Taiping. But when comparing it to its historical volatility, Prudential plc is 1.22 times less risky than China Taiping. It trades about 0.0 of its potential returns per unit of risk. China Taiping Insurance is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  81.00  in China Taiping Insurance on February 3, 2024 and sell it today you would earn a total of  6.00  from holding China Taiping Insurance or generate 7.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Prudential plc  vs.  China Taiping Insurance

Prudential plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

China Taiping Insurance

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Taiping Insurance are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Taiping reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prudential Plc and China Taiping

The main advantage of trading using opposite Prudential Plc and China Taiping positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Plc position performs unexpectedly, China Taiping 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 China Taiping will offset losses from the drop in China Taiping's long position.

The idea behind Prudential plc and China Taiping Insurance 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.