Correlation Between Principal Financial and American Equity
Can any of the company-specific risk be diversified away by investing in both Principal Financial and American Equity 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 Equity 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 Equity Investment, you can compare the effects of market volatilities on Principal Financial and American Equity 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 Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Financial and American Equity.
Diversification Opportunities for Principal Financial and American Equity
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Principal and American is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Principal Financial Group and American Equity Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Equity Inve 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 Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Equity Inve has no effect on the direction of Principal Financial i.e., Principal Financial and American Equity go up and down completely randomly.
Pair Corralation between Principal Financial and American Equity
Considering the 90-day investment horizon Principal Financial is expected to generate 2.78 times less return on investment than American Equity. But when comparing it to its historical volatility, Principal Financial Group is 1.08 times less risky than American Equity. It trades about 0.05 of its potential returns per unit of risk. American Equity Investment is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 3,691 in American Equity Investment on January 21, 2024 and sell it today you would earn a total of 1,849 from holding American Equity Investment or generate 50.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.6% |
| Values | Daily Returns |
Principal Financial Group vs. American Equity Investment
Performance |
| Timeline |
| Principal Financial |
| American Equity Inve |
Principal Financial and American Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Principal Financial and American Equity
The main advantage of trading using opposite Principal Financial and American Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal Financial position performs unexpectedly, American Equity 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 Equity will offset losses from the drop in American Equity's 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 Equity vs. MetLife Preferred Stock | American Equity vs. National Western Life | American Equity vs. Prudential Public Limited | American Equity vs. MetLife Preferred Stock |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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