Correlation Between Principal Financial and Great Elm

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

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

Diversification Opportunities for Principal Financial and Great Elm

-0.41

Correlation Coefficient

Principal Financial  Great Elm

Very good diversification

The 3 months correlation between Principal and Great is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Principal Financial Group and Great Elm Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great Elm Capital and Principal 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 Principal Financial Group are associated (or correlated) with Great Elm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great Elm Capital has no effect on the direction of Principal Financial i.e., Principal Financial and Great Elm go up and down completely randomly.

Pair Corralation between Principal Financial and Great Elm

Considering the 90-day investment horizon Principal Financial Group is expected to under-perform the Great Elm. In addition to that, Principal Financial is 2.8 times more volatile than Great Elm Capital. It trades about -0.42 of its total potential returns per unit of risk. Great Elm Capital is currently generating about 0.21 per unit of volatility. If you would invest  2,444  in Great Elm Capital on September 20, 2024 and sell it today you would earn a total of  46.00  from holding Great Elm Capital or generate 1.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Principal Financial Group  vs.  Great Elm Capital

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 latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Great Elm Capital

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Great Elm Capital are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Great Elm is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Principal Financial and Great Elm

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

The idea behind Principal Financial Group and Great Elm Capital 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.