Correlation Between Exchange Traded and Principal

Can any of the company-specific risk be diversified away by investing in both Exchange Traded and Principal 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 Exchange Traded and Principal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Exchange Traded Concepts and Principal, you can compare the effects of market volatilities on Exchange Traded and Principal 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 Exchange Traded with a short position of Principal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exchange Traded and Principal.

Diversification Opportunities for Exchange Traded and Principal

-0.55

Correlation Coefficient

Exchange Traded  Principal

Excellent diversification

The 3 months correlation between Exchange and Principal is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Exchange Traded Concepts and Principal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal and Exchange Traded 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 Exchange Traded Concepts are associated (or correlated) with Principal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal has no effect on the direction of Exchange Traded i.e., Exchange Traded and Principal go up and down completely randomly.

Pair Corralation between Exchange Traded and Principal

If you would invest  3,949  in Principal on September 20, 2024 and sell it today you would earn a total of  0.00  from holding Principal or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	50.0%
Values	Daily Returns

Exchange Traded Concepts  vs.  Principal

Exchange Traded Concepts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Exchange Traded Concepts has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Exchange Traded is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Principal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Principal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Principal is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Exchange Traded and Principal

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

The idea behind Exchange Traded Concepts and Principal 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.