Correlation Between Prudential Financial and AIA Group

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

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

Diversification Opportunities for Prudential Financial and AIA Group

0.6

Correlation Coefficient

Prudential Financial  AIA Group

Poor diversification

The 3 months correlation between Prudential and AIA is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and AIA Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIA Group Limited 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 AIA Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIA Group Limited has no effect on the direction of Prudential Financial i.e., Prudential Financial and AIA Group go up and down completely randomly.

Pair Corralation between Prudential Financial and AIA Group

Assuming the 90 days horizon Prudential Financial is expected to under-perform the AIA Group. But the stock apears to be less risky and, when comparing its historical volatility, Prudential Financial is 1.63 times less risky than AIA Group. The stock trades about -0.05 of its potential returns per unit of risk. The AIA Group Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  718.00  in AIA Group Limited on April 14, 2025 and sell it today you would earn a total of  42.00  from holding AIA Group Limited or generate 5.85% return on investment over 90 days.

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

Prudential Financial  vs.  AIA Group Limited

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

AIA Group Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AIA Group Limited are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, AIA Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prudential Financial and AIA Group

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

The idea behind Prudential Financial and AIA Group Limited 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.