Correlation Between Principal Financial and State Street

Can any of the company-specific risk be diversified away by investing in both Principal Financial and State Street 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 State Street 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 State Street Corp, you can compare the effects of market volatilities on Principal Financial and State Street 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 State Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Financial and State Street.

Diversification Opportunities for Principal Financial and State Street

0.21

Correlation Coefficient

Principal Financial  State Street

Modest diversification

The 3 months correlation between Principal and State is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Principal Financial Group and State Street Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Corp 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 State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street Corp has no effect on the direction of Principal Financial i.e., Principal Financial and State Street go up and down completely randomly.

Pair Corralation between Principal Financial and State Street

Considering the 90-day investment horizon Principal Financial Group is expected to under-perform the State Street. But the stock apears to be less risky and, when comparing its historical volatility, Principal Financial Group is 1.09 times less risky than State Street. The stock trades about -0.01 of its potential returns per unit of risk. The State Street Corp is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  9,803  in State Street Corp on November 27, 2024 and sell it today you would lose (82.00) from holding State Street Corp or give up 0.84% of portfolio value over 90 days.

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

Principal Financial Group  vs.  State Street Corp

Principal Financial

Risk-Adjusted Performance

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 technical and fundamental indicators, Principal Financial is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

State Street Corp

Risk-Adjusted Performance

Weak

Over the last 90 days State Street Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, State Street is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Principal Financial and State Street

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

The idea behind Principal Financial Group and State Street Corp 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.