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
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Prospect and Principal is 0.66. 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 under-perform the Principal Financial. In addition to that, Prospect Capital is 1.43 times more volatile than Principal Financial Group. It trades about -0.07 of its total potential returns per unit of risk. Principal Financial Group is currently generating about 0.11 per unit of volatility. 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 |
Prospect Capital vs. Principal Financial Group
Performance |
| Timeline |
| Prospect Capital |
| Principal Financial |
Prospect Capital and Principal Financial Volatility Contrast
Predicted Return Density |
| Returns |
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.| Prospect Capital vs. PennyMac Mortgage Investment | Prospect Capital vs. SiriusPoint | Prospect Capital vs. Telephone and Data | Prospect Capital vs. ARMOUR Residential REIT |
| 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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