Correlation Between H2O Retailing and Prudential Financial

Can any of the company-specific risk be diversified away by investing in both H2O Retailing 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 H2O Retailing and Prudential Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between H2O Retailing and Prudential Financial, you can compare the effects of market volatilities on H2O Retailing 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 H2O Retailing with a short position of Prudential Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of H2O Retailing and Prudential Financial.

Diversification Opportunities for H2O Retailing and Prudential Financial

0.24

Correlation Coefficient

H2O Retailing  Prudential Financial

Modest diversification

The 3 months correlation between H2O and Prudential is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding H2O Retailing and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial and H2O Retailing 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 H2O Retailing 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 H2O Retailing i.e., H2O Retailing and Prudential Financial go up and down completely randomly.

Pair Corralation between H2O Retailing and Prudential Financial

Assuming the 90 days horizon H2O Retailing is expected to under-perform the Prudential Financial. In addition to that, H2O Retailing is 1.26 times more volatile than Prudential Financial. It trades about -0.03 of its total potential returns per unit of risk. Prudential Financial is currently generating about -0.02 per unit of volatility. If you would invest  9,043  in Prudential Financial on April 24, 2025 and sell it today you would lose (195.00) from holding Prudential Financial or give up 2.16% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

H2O Retailing  vs.  Prudential Financial

H2O Retailing

Risk-Adjusted Performance

Very Weak

Over the last 90 days H2O Retailing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, H2O Retailing 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

Very Weak

Over the last 90 days Prudential Financial has generated negative risk-adjusted returns adding no value to investors with long positions. 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 H2O Retailing and Prudential Financial

The main advantage of trading using opposite H2O Retailing and Prudential Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if H2O Retailing 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 H2O Retailing 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.

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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.