Correlation Between Nissan Chemical and Principal Financial

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

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

Diversification Opportunities for Nissan Chemical and Principal Financial

0.71

Correlation Coefficient

Nissan Chemical  Principal Financial

Poor diversification

The 3 months correlation between Nissan and Principal is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Nissan Chemical Corp and Principal Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Financial and Nissan Chemical 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 Nissan Chemical Corp 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 Nissan Chemical i.e., Nissan Chemical and Principal Financial go up and down completely randomly.

Pair Corralation between Nissan Chemical and Principal Financial

Assuming the 90 days trading horizon Nissan Chemical is expected to generate 1.04 times less return on investment than Principal Financial. In addition to that, Nissan Chemical is 1.04 times more volatile than Principal Financial Group. It trades about 0.03 of its total potential returns per unit of risk. Principal Financial Group is currently generating about 0.03 per unit of volatility. If you would invest  7,066  in Principal Financial Group on September 29, 2024 and sell it today you would earn a total of  434.00  from holding Principal Financial Group or generate 6.14% return on investment over 90 days.

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

Nissan Chemical Corp  vs.  Principal Financial Group

Nissan Chemical Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nissan Chemical Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Principal Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Principal Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Principal 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 Nissan Chemical and Principal Financial

The main advantage of trading using opposite Nissan Chemical and Principal Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nissan Chemical 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 Nissan Chemical Corp 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.