Correlation Between Principal Financial and Fidelity Info

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

Diversification Opportunities for Principal Financial and Fidelity Info

0.68
  Correlation Coefficient

Poor diversification

The 3 months correlation between Principal and Fidelity is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Principal Financial Group and Fidelity Info Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Info Tech 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 Fidelity Info. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Info Tech has no effect on the direction of Principal Financial i.e., Principal Financial and Fidelity Info go up and down completely randomly.

Pair Corralation between Principal Financial and Fidelity Info

Considering the 90-day investment horizon Principal Financial Group is expected to generate 1.25 times more return on investment than Fidelity Info. However, Principal Financial is 1.25 times more volatile than Fidelity Info Tech. It trades about 0.08 of its potential returns per unit of risk. Fidelity Info Tech is currently generating about 0.03 per unit of risk. If you would invest  4,034  in Principal Financial Group on May 18, 2022 and sell it today you would earn a total of  3,864  from holding Principal Financial Group or generate 95.79% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Principal Financial Group  vs.  Fidelity Info Tech

 Performance (%) 
       Timeline  
Principal Financial 
Principal Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Principal Financial Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Principal Financial may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Principal Price Channel

Fidelity Info Tech 
Fidelity Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Info Tech are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Fidelity Info sustained solid returns over the last few months and may actually be approaching a breakup point.

Fidelity Price Channel

Principal Financial and Fidelity Info Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Principal Financial and Fidelity Info

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

Fidelity Info Tech

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The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Fidelity Info as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Fidelity Info's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Fidelity Info's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Fidelity Info Tech.
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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