Correlation Between Great Elm and Principal Financial
Can any of the company-specific risk be diversified away by investing in both Great Elm 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 Great Elm and Principal Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Great Elm Capital and Principal Financial Group, you can compare the effects of market volatilities on Great Elm 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 Great Elm with a short position of Principal Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Great Elm and Principal Financial.
Diversification Opportunities for Great Elm and Principal Financial
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Great and Principal is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Great Elm 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 Great Elm 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 Great Elm 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 Great Elm i.e., Great Elm and Principal Financial go up and down completely randomly.
Pair Corralation between Great Elm and Principal Financial
Assuming the 90 days horizon Great Elm Capital is expected to under-perform the Principal Financial. But the stock apears to be less risky and, when comparing its historical volatility, Great Elm Capital is 6.18 times less risky than Principal Financial. The stock trades about -0.01 of its potential returns per unit of risk. The Principal Financial Group is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 8,449 in Principal Financial Group on August 27, 2024 and sell it today you would earn a total of 255.00 from holding Principal Financial Group or generate 3.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Great Elm Capital vs. Principal Financial Group
Performance |
| Timeline |
| Great Elm Capital |
| Principal Financial |
Great Elm and Principal Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Great Elm and Principal Financial
The main advantage of trading using opposite Great Elm and Principal Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great Elm 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.| Great Elm vs. Gladstone Investment | Great Elm vs. B Riley Financial | Great Elm vs. HUMANA INC | Great Elm vs. Aquagold International |
| Principal Financial vs. State Street Corp | Principal Financial vs. Bank of New | Principal Financial vs. SEI Investments | Principal Financial vs. Affiliated Managers Group |
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.
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