Correlation Between Principal Financial and INSURANCE AUST

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

Diversification Opportunities for Principal Financial and INSURANCE AUST

-0.26

Correlation Coefficient

Principal Financial  INSURANCE AUST

Very good diversification

The 3 months correlation between Principal and INSURANCE is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Principal Financial Group and INSURANCE AUST GRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INSURANCE AUST GRP 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 INSURANCE AUST. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INSURANCE AUST GRP has no effect on the direction of Principal Financial i.e., Principal Financial and INSURANCE AUST go up and down completely randomly.

Pair Corralation between Principal Financial and INSURANCE AUST

Assuming the 90 days horizon Principal Financial is expected to generate 4.44 times less return on investment than INSURANCE AUST. In addition to that, Principal Financial is 1.13 times more volatile than INSURANCE AUST GRP. It trades about 0.03 of its total potential returns per unit of risk. INSURANCE AUST GRP is currently generating about 0.13 per unit of volatility. If you would invest  400.00  in INSURANCE AUST GRP on October 20, 2024 and sell it today you would earn a total of  115.00  from holding INSURANCE AUST GRP or generate 28.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

Principal Financial Group  vs.  INSURANCE AUST GRP

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.

INSURANCE AUST GRP

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in INSURANCE AUST GRP are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, INSURANCE AUST exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Principal Financial and INSURANCE AUST

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

The idea behind Principal Financial Group and INSURANCE AUST GRP 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.