Correlation Between Principal Financial and American Airlines
Can any of the company-specific risk be diversified away by investing in both Principal Financial and American Airlines 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 Principal Financial and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Principal Financial Group and American Airlines Group, you can compare the effects of market volatilities on Principal Financial and American Airlines 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 Principal Financial with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Financial and American Airlines.
Diversification Opportunities for Principal Financial and American Airlines
0.12 | Correlation Coefficient |
Average diversification
The 3 months correlation between Principal and American is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Principal Financial Group and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Principal Financial 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 Principal Financial Group are associated (or correlated) with American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Principal Financial i.e., Principal Financial and American Airlines go up and down completely randomly.
Pair Corralation between Principal Financial and American Airlines
Considering the 90-day investment horizon Principal Financial Group is expected to generate 0.52 times more return on investment than American Airlines. However, Principal Financial Group is 1.91 times less risky than American Airlines. It trades about 0.05 of its potential returns per unit of risk. American Airlines Group is currently generating about -0.03 per unit of risk. If you would invest 7,218 in Principal Financial Group on January 24, 2024 and sell it today you would earn a total of 917.00 from holding Principal Financial Group or generate 12.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Principal Financial Group vs. American Airlines Group
Performance |
| Timeline |
| Principal Financial |
| American Airlines |
Principal Financial and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Principal Financial and American Airlines
The main advantage of trading using opposite Principal Financial and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal Financial position performs unexpectedly, American Airlines 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 American Airlines will offset losses from the drop in American Airlines' long position.| Principal Financial vs. State Street Corp | Principal Financial vs. Bank of New | Principal Financial vs. SEI Investments | Principal Financial vs. Affiliated Managers Group |
| American Airlines vs. Delta Air Lines | American Airlines vs. Southwest Airlines | American Airlines vs. JetBlue Airways Corp | American Airlines vs. Spirit Airlines |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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