Correlation Between Danske Bank and Prudential Financial

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

By analyzing existing cross correlation between Danske Bank AS and Prudential Financial 4125, you can compare the effects of market volatilities on Danske Bank 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 Danske Bank with a short position of Prudential Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Danske Bank and Prudential Financial.

Diversification Opportunities for Danske Bank and Prudential Financial

0.42

Correlation Coefficient

Danske Bank  Prudential Financial

Very weak diversification

The 3 months correlation between Danske and Prudential is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Danske Bank AS and Prudential Financial 4125 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial 4125 and Danske Bank 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 Danske Bank AS 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 4125 has no effect on the direction of Danske Bank i.e., Danske Bank and Prudential Financial go up and down completely randomly.

Pair Corralation between Danske Bank and Prudential Financial

Assuming the 90 days horizon Danske Bank AS is expected to generate 1.75 times more return on investment than Prudential Financial. However, Danske Bank is 1.75 times more volatile than Prudential Financial 4125. It trades about 0.08 of its potential returns per unit of risk. Prudential Financial 4125 is currently generating about 0.01 per unit of risk. If you would invest  979.00  in Danske Bank AS on March 21, 2024 and sell it today you would earn a total of  505.00  from holding Danske Bank AS or generate 51.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.72%
Values	Daily Returns

Danske Bank AS  vs.  Prudential Financial 4125

Danske Bank AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Danske Bank AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Danske Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Prudential Financial 4125

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Financial 4125 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Prudential Financial is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Danske Bank and Prudential Financial

The main advantage of trading using opposite Danske Bank and Prudential Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Danske Bank 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 Danske Bank AS and Prudential Financial 4125 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.