Correlation Between Prudential Plc and China Mobile

Can any of the company-specific risk be diversified away by investing in both Prudential Plc and China Mobile 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 Mobile 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 Life Insurance, you can compare the effects of market volatilities on Prudential Plc and China Mobile 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 Mobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Plc and China Mobile.

Diversification Opportunities for Prudential Plc and China Mobile

0.62

Correlation Coefficient

Prudential Plc  China Mobile

Poor diversification

The 3 months correlation between Prudential and China is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Prudential plc and China Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Life 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 Mobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Life Insurance has no effect on the direction of Prudential Plc i.e., Prudential Plc and China Mobile go up and down completely randomly.

Pair Corralation between Prudential Plc and China Mobile

Assuming the 90 days horizon Prudential plc is expected to under-perform the China Mobile. But the stock apears to be less risky and, when comparing its historical volatility, Prudential plc is 1.22 times less risky than China Mobile. The stock trades about -0.17 of its potential returns per unit of risk. The China Life Insurance is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  135.00  in China Life Insurance on March 15, 2024 and sell it today you would lose (7.00) from holding China Life Insurance or give up 5.19% of portfolio value over 90 days.

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

Prudential plc  vs.  China Life 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 nearly stable basic indicators, Prudential Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

China Life Insurance

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Prudential Plc and China Mobile

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

The idea behind Prudential plc and China Life 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.