Correlation Between Principal Financial and SBM OFFSHORE

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

Diversification Opportunities for Principal Financial and SBM OFFSHORE

0.52

Correlation Coefficient

Principal Financial  SBM OFFSHORE

Very weak diversification

The 3 months correlation between Principal and SBM is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Principal Financial Group and SBM OFFSHORE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBM OFFSHORE 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 SBM OFFSHORE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBM OFFSHORE has no effect on the direction of Principal Financial i.e., Principal Financial and SBM OFFSHORE go up and down completely randomly.

Pair Corralation between Principal Financial and SBM OFFSHORE

Assuming the 90 days horizon Principal Financial is expected to generate 2.48 times less return on investment than SBM OFFSHORE. But when comparing it to its historical volatility, Principal Financial Group is 1.03 times less risky than SBM OFFSHORE. It trades about 0.04 of its potential returns per unit of risk. SBM OFFSHORE is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,142  in SBM OFFSHORE on October 5, 2024 and sell it today you would earn a total of  533.00  from holding SBM OFFSHORE or generate 46.67% return on investment over 90 days.

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

Principal Financial Group  vs.  SBM OFFSHORE

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

SBM OFFSHORE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SBM OFFSHORE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, SBM OFFSHORE is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Principal Financial and SBM OFFSHORE

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

The idea behind Principal Financial Group and SBM OFFSHORE 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..