Correlation Between Playa Hotels and Principal Financial

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Can any of the company-specific risk be diversified away by investing in both Playa Hotels 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 Playa Hotels and Principal Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Playa Hotels Resorts and Principal Financial Group, you can compare the effects of market volatilities on Playa Hotels 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 Playa Hotels with a short position of Principal Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Playa Hotels and Principal Financial.

Diversification Opportunities for Playa Hotels and Principal Financial

0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between Playa and Principal is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Playa Hotels Resorts and Principal Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Financial and Playa Hotels 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 Playa Hotels Resorts 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 Playa Hotels i.e., Playa Hotels and Principal Financial go up and down completely randomly.

Pair Corralation between Playa Hotels and Principal Financial

Assuming the 90 days horizon Playa Hotels Resorts is expected to generate 1.46 times more return on investment than Principal Financial. However, Playa Hotels is 1.46 times more volatile than Principal Financial Group. It trades about 0.25 of its potential returns per unit of risk. Principal Financial Group is currently generating about 0.17 per unit of risk. If you would invest  775.00  in Playa Hotels Resorts on September 1, 2024 and sell it today you would earn a total of  135.00  from holding Playa Hotels Resorts or generate 17.42% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.65%
ValuesDaily Returns

Playa Hotels Resorts  vs.  Principal Financial Group

 Performance 
       Timeline  
Playa Hotels Resorts 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Playa Hotels Resorts are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Playa Hotels reported solid returns over the last few months and may actually be approaching a breakup point.
Principal Financial 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Principal Financial Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Principal Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Playa Hotels and Principal Financial Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Playa Hotels and Principal Financial

The main advantage of trading using opposite Playa Hotels and Principal Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Playa Hotels 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 Playa Hotels Resorts 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.

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