Correlation Between Principal Financial and Playtech Plc

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

Diversification Opportunities for Principal Financial and Playtech Plc

-0.17

Correlation Coefficient

Principal Financial  Playtech Plc

Good diversification

The 3 months correlation between Principal and Playtech is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Principal Financial Group and Playtech plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Playtech plc 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 Playtech Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Playtech plc has no effect on the direction of Principal Financial i.e., Principal Financial and Playtech Plc go up and down completely randomly.

Pair Corralation between Principal Financial and Playtech Plc

Assuming the 90 days horizon Principal Financial Group is expected to generate 2.47 times more return on investment than Playtech Plc. However, Principal Financial is 2.47 times more volatile than Playtech plc. It trades about -0.01 of its potential returns per unit of risk. Playtech plc is currently generating about -0.08 per unit of risk. If you would invest  7,780  in Principal Financial Group on October 5, 2024 and sell it today you would lose (230.00) from holding Principal Financial Group or give up 2.96% of portfolio value over 90 days.

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

Principal Financial Group  vs.  Playtech plc

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.

Playtech plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Playtech plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Playtech Plc 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 Playtech Plc

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

The idea behind Principal Financial Group and Playtech plc 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.