Correlation Between Prospect Capital and Principal Financial

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

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

Diversification Opportunities for Prospect Capital and Principal Financial

0.66

Correlation Coefficient

Prospect Capital  Principal Financial

Poor diversification

The 3 months correlation between Prospect and Principal is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Prospect Capital and Principal Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Financial and Prospect Capital 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 Prospect Capital are associated (or correlated) with Principal Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Financial has no effect on the direction of Prospect Capital i.e., Prospect Capital and Principal Financial go up and down completely randomly.

Pair Corralation between Prospect Capital and Principal Financial

Assuming the 90 days trading horizon Prospect Capital is expected to under-perform the Principal Financial. In addition to that, Prospect Capital is 1.43 times more volatile than Principal Financial Group. It trades about -0.07 of its total potential returns per unit of risk. Principal Financial Group is currently generating about 0.11 per unit of volatility. If you would invest  8,449  in Principal Financial Group on August 27, 2024 and sell it today you would earn a total of  255.00  from holding Principal Financial Group or generate 3.02% return on investment over 90 days.

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

Prospect Capital  vs.  Principal Financial Group

Prospect Capital

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Prospect Capital are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Prospect Capital is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Principal Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Financial Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, Principal Financial may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Prospect Capital and Principal Financial

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

The idea behind Prospect Capital and Principal Financial Group 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.