Correlation Between Prospect Capital and Principal Financial

Can any of the company-specific risk be diversified away by investing in both Prospect Capital and Principal Financial 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 Prospect Capital and Principal Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Prospect Capital and Principal Financial Group, you can compare the effects of market volatilities on Prospect Capital and Principal Financial 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 Prospect Capital with a short position of Principal Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prospect Capital and Principal Financial.

Diversification Opportunities for Prospect Capital and Principal Financial

0.61

Correlation Coefficient

Prospect Capital  Principal Financial

Poor diversification

The 3 months correlation between Prospect and Principal is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Prospect Capital and Principal Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Financial and Prospect Capital 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 Prospect Capital are associated (or correlated) with Principal Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Financial has no effect on the direction of Prospect Capital i.e., Prospect Capital and Principal Financial go up and down completely randomly.

Pair Corralation between Prospect Capital and Principal Financial

Assuming the 90 days trading horizon Prospect Capital is expected to generate 0.83 times more return on investment than Principal Financial. However, Prospect Capital is 1.2 times less risky than Principal Financial. It trades about -0.25 of its potential returns per unit of risk. Principal Financial Group is currently generating about -0.28 per unit of risk. If you would invest  1,905  in Prospect Capital on September 22, 2024 and sell it today you would lose (113.00) from holding Prospect Capital or give up 5.93% of portfolio value over 90 days.

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

Prospect Capital  vs.  Principal Financial Group

Prospect Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prospect Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Preferred Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Prospect Capital and Principal Financial

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

The idea behind Prospect Capital and Principal Financial Group 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.