Correlation Between Great-West Lifeco and Prudential Financial

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

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

Diversification Opportunities for Great-West Lifeco and Prudential Financial

-0.15

Correlation Coefficient

Great-West Lifeco  Prudential Financial

Good diversification

The 3 months correlation between Great-West and Prudential is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Great West Lifeco and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial and Great-West Lifeco 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 Great West Lifeco 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 has no effect on the direction of Great-West Lifeco i.e., Great-West Lifeco and Prudential Financial go up and down completely randomly.

Pair Corralation between Great-West Lifeco and Prudential Financial

Assuming the 90 days horizon Great West Lifeco is expected to under-perform the Prudential Financial. But the stock apears to be less risky and, when comparing its historical volatility, Great West Lifeco is 1.15 times less risky than Prudential Financial. The stock trades about 0.0 of its potential returns per unit of risk. The Prudential Financial is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  8,622  in Prudential Financial on April 20, 2025 and sell it today you would earn a total of  216.00  from holding Prudential Financial or generate 2.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Great West Lifeco  vs.  Prudential Financial

Great West Lifeco

Risk-Adjusted Performance

Very Weak

Over the last 90 days Great West Lifeco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Great-West Lifeco is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Prudential Financial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Prudential Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Great-West Lifeco and Prudential Financial

The main advantage of trading using opposite Great-West Lifeco and Prudential Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great-West Lifeco 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 Great West Lifeco and Prudential Financial 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.