Correlation Between Prudential Financial and Selective Insurance
Can any of the company-specific risk be diversified away by investing in both Prudential Financial and Selective Insurance 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 Selective Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prudential Financial and Selective Insurance Group, you can compare the effects of market volatilities on Prudential Financial and Selective Insurance 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 Selective Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Financial and Selective Insurance.
Diversification Opportunities for Prudential Financial and Selective Insurance
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Prudential and Selective is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and Selective Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Selective Insurance 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 Selective Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Selective Insurance has no effect on the direction of Prudential Financial i.e., Prudential Financial and Selective Insurance go up and down completely randomly.
Pair Corralation between Prudential Financial and Selective Insurance
Considering the 90-day investment horizon Prudential Financial is expected to generate 1.61 times less return on investment than Selective Insurance. In addition to that, Prudential Financial is 1.05 times more volatile than Selective Insurance Group. It trades about 0.02 of its total potential returns per unit of risk. Selective Insurance Group is currently generating about 0.03 per unit of volatility. If you would invest 8,332 in Selective Insurance Group on January 24, 2024 and sell it today you would earn a total of 1,909 from holding Selective Insurance Group or generate 22.91% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Prudential Financial vs. Selective Insurance Group
Performance |
Timeline |
Prudential Financial |
Selective Insurance |
Prudential Financial and Selective Insurance Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Prudential Financial and Selective Insurance
The main advantage of trading using opposite Prudential Financial and Selective Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Financial position performs unexpectedly, Selective Insurance 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 Selective Insurance will offset losses from the drop in Selective Insurance's long position.The idea behind Prudential Financial and Selective Insurance Group 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.Selective Insurance vs. Aquagold International | Selective Insurance vs. Thrivent High Yield | Selective Insurance vs. Morningstar Unconstrained Allocation | Selective Insurance vs. Via Renewables |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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