Correlation Between Principal Capital and Financial Select
Can any of the company-specific risk be diversified away by investing in both Principal Capital and Financial Select 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 Capital and Financial Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Principal Capital Appreciation and Financial Select Sector, you can compare the effects of market volatilities on Principal Capital and Financial Select 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 Capital with a short position of Financial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Capital and Financial Select.
Diversification Opportunities for Principal Capital and Financial Select
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Principal and Financial is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Principal Capital Appreciation and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Select Sector and Principal Capital 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 Capital Appreciation are associated (or correlated) with Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of Principal Capital i.e., Principal Capital and Financial Select go up and down completely randomly.
Pair Corralation between Principal Capital and Financial Select
Given the investment horizon of 90 days Principal Capital Appreciation is expected to generate 0.79 times more return on investment than Financial Select. However, Principal Capital Appreciation is 1.26 times less risky than Financial Select. It trades about 0.17 of its potential returns per unit of risk. Financial Select Sector is currently generating about 0.12 per unit of risk. If you would invest 2,740 in Principal Capital Appreciation on May 31, 2025 and sell it today you would earn a total of 66.00 from holding Principal Capital Appreciation or generate 2.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Principal Capital Appreciation vs. Financial Select Sector
Performance |
| Timeline |
| Principal Capital |
| Financial Select Sector |
Principal Capital and Financial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Principal Capital and Financial Select
The main advantage of trading using opposite Principal Capital and Financial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal Capital position performs unexpectedly, Financial Select 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 Financial Select will offset losses from the drop in Financial Select's long position.| Principal Capital vs. FT Vest Equity | Principal Capital vs. Northern Lights | Principal Capital vs. Dimensional International High | Principal Capital vs. JPMorgan Fundamental Data |
| Financial Select vs. Energy Select Sector | Financial Select vs. Technology Select Sector | Financial Select vs. Health Care Select | Financial Select vs. Industrial Select Sector |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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