Correlation Between Principal Financial and Axa SA

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

Diversification Opportunities for Principal Financial and Axa SA

0.84
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Principal and AXAHY is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Principal Financial Group and Axa SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axa SA ADR 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 Axa SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axa SA ADR has no effect on the direction of Principal Financial i.e., Principal Financial and Axa SA go up and down completely randomly.

Pair Corralation between Principal Financial and Axa SA

Considering the 90-day investment horizon Principal Financial is expected to generate 13.86 times less return on investment than Axa SA. In addition to that, Principal Financial is 1.53 times more volatile than Axa SA ADR. It trades about 0.02 of its total potential returns per unit of risk. Axa SA ADR is currently generating about 0.32 per unit of volatility. If you would invest  2,660  in Axa SA ADR on September 9, 2022 and sell it today you would earn a total of  206.00  from holding Axa SA ADR or generate 7.74% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy95.45%
ValuesDaily Returns

Principal Financial Group  vs.  Axa SA ADR

 Performance (%) 
       Timeline  
Principal Financial 
Principal Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Principal Financial Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting technical and fundamental indicators, Principal Financial exhibited solid returns over the last few months and may actually be approaching a breakup point.

Principal Price Channel

Axa SA ADR 
AXAHY Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Axa SA ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical indicators, Axa SA showed solid returns over the last few months and may actually be approaching a breakup point.

AXAHY Price Channel

Principal Financial and Axa SA Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Principal Financial and Axa SA

The main advantage of trading using opposite Principal Financial and Axa SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal Financial position performs unexpectedly, Axa SA 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 Axa SA will offset losses from the drop in Axa SA's long position.
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The idea behind Principal Financial Group and Axa SA ADR 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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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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