Correlation Between Emerge Capital and Principal Financial

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Can any of the company-specific risk be diversified away by investing in both Emerge 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 Emerge 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 Emerge Capital Management and Principal Financial Group, you can compare the effects of market volatilities on Emerge 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 Emerge Capital with a short position of Principal Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerge Capital and Principal Financial.

Diversification Opportunities for Emerge Capital and Principal Financial

0.65
  Correlation Coefficient

Poor diversification

The 3 months correlation between Emerge and Principal is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Emerge Capital Management and Principal Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Financial and Emerge 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 Emerge Capital Management 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 Emerge Capital i.e., Emerge Capital and Principal Financial go up and down completely randomly.

Pair Corralation between Emerge Capital and Principal Financial

Given the investment horizon of 90 days Emerge Capital Management is expected to generate 0.59 times more return on investment than Principal Financial. However, Emerge Capital Management is 1.69 times less risky than Principal Financial. It trades about 0.07 of its potential returns per unit of risk. Principal Financial Group is currently generating about 0.02 per unit of risk. If you would invest  2,380  in Emerge Capital Management on December 29, 2023 and sell it today you would earn a total of  187.00  from holding Emerge Capital Management or generate 7.86% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy43.23%
ValuesDaily Returns

Emerge Capital Management  vs.  Principal Financial Group

 Performance 
       Timeline  
Emerge Capital Management 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Emerge Capital Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Emerge Capital is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
Principal Financial 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Principal Financial Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Principal Financial may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Emerge Capital and Principal Financial Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Emerge Capital and Principal Financial

The main advantage of trading using opposite Emerge Capital and Principal Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerge 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 Emerge Capital Management 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.
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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