Correlation Between Prudential Financial and Sigma Lithium

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

By analyzing existing cross correlation between Prudential Financial and Sigma Lithium Resources, you can compare the effects of market volatilities on Prudential Financial and Sigma Lithium 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 Sigma Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prudential Financial and Sigma Lithium.

Diversification Opportunities for Prudential Financial and Sigma Lithium

-0.63

Correlation Coefficient

Prudential Financial  Sigma Lithium

Excellent diversification

The 3 months correlation between Prudential and Sigma is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and Sigma Lithium Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sigma Lithium Resources 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 Sigma Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sigma Lithium Resources has no effect on the direction of Prudential Financial i.e., Prudential Financial and Sigma Lithium go up and down completely randomly.

Pair Corralation between Prudential Financial and Sigma Lithium

Considering the 90-day investment horizon Prudential Financial is expected to generate 0.27 times more return on investment than Sigma Lithium. However, Prudential Financial is 3.74 times less risky than Sigma Lithium. It trades about 0.13 of its potential returns per unit of risk. Sigma Lithium Resources is currently generating about -0.09 per unit of risk. If you would invest  8,302  in Prudential Financial on January 24, 2024 and sell it today you would earn a total of  2,845  from holding Prudential Financial or generate 34.27% return on investment over 90 days.

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

Prudential Financial  vs.  Sigma Lithium Resources

Prudential Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Prudential Financial may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Sigma Lithium Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sigma Lithium Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's primary indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Prudential Financial and Sigma Lithium

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

The idea behind Prudential Financial and Sigma Lithium Resources 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.