Correlation Between Principal Financial and Brookfield Business

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

Diversification Opportunities for Principal Financial and Brookfield Business

0.38

Correlation Coefficient

Principal Financial  Brookfield Business

Weak diversification

The 3 months correlation between Principal and Brookfield is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Principal Financial Group and Brookfield Business Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Business Corp 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 Brookfield Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Business Corp has no effect on the direction of Principal Financial i.e., Principal Financial and Brookfield Business go up and down completely randomly.

Pair Corralation between Principal Financial and Brookfield Business

Considering the 90-day investment horizon Principal Financial Group is expected to generate 0.74 times more return on investment than Brookfield Business. However, Principal Financial Group is 1.36 times less risky than Brookfield Business. It trades about -0.39 of its potential returns per unit of risk. Brookfield Business Corp is currently generating about -0.44 per unit of risk. If you would invest  8,636  in Principal Financial Group on September 29, 2024 and sell it today you would lose (865.00) from holding Principal Financial Group or give up 10.02% of portfolio value over 90 days.

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

Principal Financial Group  vs.  Brookfield Business Corp

Principal Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Principal Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Brookfield Business Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brookfield Business Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Principal Financial and Brookfield Business

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

The idea behind Principal Financial Group and Brookfield Business Corp 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.