Correlation Between IShares SP and Principal

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

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

Diversification Opportunities for IShares SP and Principal

0.68

Correlation Coefficient

IShares SP  Principal

Poor diversification

The 3 months correlation between IShares and Principal is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP Small Cap and Principal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal and IShares SP 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 iShares SP Small Cap 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 IShares SP i.e., IShares SP and Principal go up and down completely randomly.

Pair Corralation between IShares SP and Principal

If you would invest  10,503  in iShares SP Small Cap on September 25, 2024 and sell it today you would earn a total of  390.00  from holding iShares SP Small Cap or generate 3.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	1.56%
Values	Daily Returns

iShares SP Small Cap  vs.  Principal

iShares SP Small

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Small Cap are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward-looking indicators, IShares SP is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private 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. Despite quite persistent basic indicators, Principal is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with IShares SP and Principal

The main advantage of trading using opposite IShares SP and Principal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares SP 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 iShares SP Small Cap 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.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.