Correlation Between Principal Financial and Tsingtao Brewery

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

Diversification Opportunities for Principal Financial and Tsingtao Brewery

-0.45

Correlation Coefficient

Principal Financial  Tsingtao Brewery

Very good diversification

The 3 months correlation between Principal and Tsingtao is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Principal Financial Group and Tsingtao Brewery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tsingtao Brewery 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 Tsingtao Brewery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tsingtao Brewery has no effect on the direction of Principal Financial i.e., Principal Financial and Tsingtao Brewery go up and down completely randomly.

Pair Corralation between Principal Financial and Tsingtao Brewery

Assuming the 90 days horizon Principal Financial is expected to generate 4.81 times less return on investment than Tsingtao Brewery. But when comparing it to its historical volatility, Principal Financial Group is 2.06 times less risky than Tsingtao Brewery. It trades about 0.01 of its potential returns per unit of risk. Tsingtao Brewery is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  478.00  in Tsingtao Brewery on October 22, 2024 and sell it today you would earn a total of  171.00  from holding Tsingtao Brewery or generate 35.77% 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.  Tsingtao Brewery

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.

Tsingtao Brewery

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tsingtao Brewery are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward indicators, Tsingtao Brewery is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Principal Financial and Tsingtao Brewery

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

The idea behind Principal Financial Group and Tsingtao Brewery 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.