Correlation Between Principal Financial and Berkshire Hathaway

Can any of the company-specific risk be diversified away by investing in both Principal Financial and Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway, you can compare the effects of market volatilities on Principal Financial and Berkshire Hathaway 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 Berkshire Hathaway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Financial and Berkshire Hathaway.

Diversification Opportunities for Principal Financial and Berkshire Hathaway

0.72

Correlation Coefficient

Principal Financial  Berkshire Hathaway

Poor diversification

The 3 months correlation between Principal and Berkshire is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Principal Financial Group and Berkshire Hathaway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway 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 Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway has no effect on the direction of Principal Financial i.e., Principal Financial and Berkshire Hathaway go up and down completely randomly.

Pair Corralation between Principal Financial and Berkshire Hathaway

Considering the 90-day investment horizon Principal Financial Group is expected to under-perform the Berkshire Hathaway. In addition to that, Principal Financial is 1.41 times more volatile than Berkshire Hathaway. It trades about -0.12 of its total potential returns per unit of risk. Berkshire Hathaway is currently generating about -0.09 per unit of volatility. If you would invest  62,238,000  in Berkshire Hathaway on January 26, 2024 and sell it today you would lose (896,000) from holding Berkshire Hathaway or give up 1.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Principal Financial Group  vs.  Berkshire Hathaway

Principal Financial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Financial Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Principal Financial is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Berkshire Hathaway

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Berkshire Hathaway is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Principal Financial and Berkshire Hathaway

The main advantage of trading using opposite Principal Financial and Berkshire Hathaway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal Financial position performs unexpectedly, Berkshire Hathaway 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 Berkshire Hathaway will offset losses from the drop in Berkshire Hathaway's long position.

The idea behind Principal Financial Group and Berkshire Hathaway 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.