Correlation Between Prudential Financial and Small Midcap

Can any of the company-specific risk be diversified away by investing in both Prudential Financial and Small Midcap 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 Small Midcap 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 Small Midcap Dividend Income, you can compare the effects of market volatilities on Prudential Financial and Small Midcap 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 Small Midcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Financial and Small Midcap.

Diversification Opportunities for Prudential Financial and Small Midcap

0.53

Correlation Coefficient

Prudential Financial  Small Midcap

Very weak diversification

The 3 months correlation between Prudential and Small is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial Services and Small Midcap Dividend Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Midcap Dividend 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 Small Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Midcap Dividend has no effect on the direction of Prudential Financial i.e., Prudential Financial and Small Midcap go up and down completely randomly.

Pair Corralation between Prudential Financial and Small Midcap

Assuming the 90 days horizon Prudential Financial is expected to generate 1.07 times less return on investment than Small Midcap. But when comparing it to its historical volatility, Prudential Financial Services is 1.08 times less risky than Small Midcap. It trades about 0.14 of its potential returns per unit of risk. Small Midcap Dividend Income is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,747  in Small Midcap Dividend Income on May 2, 2025 and sell it today you would earn a total of  149.00  from holding Small Midcap Dividend Income or generate 8.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Prudential Financial Services  vs.  Small Midcap Dividend Income

Prudential Financial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial Services are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Prudential Financial may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Small Midcap Dividend

Risk-Adjusted Performance

OK

Over the last 90 days Small Midcap Dividend Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak basic indicators, Small Midcap may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Prudential Financial and Small Midcap

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

The idea behind Prudential Financial Services and Small Midcap Dividend Income 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.