Correlation Between Principal Financial and ITUB4F

Can any of the company-specific risk be diversified away by investing in both Principal Financial and ITUB4F 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 ITUB4F 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 ITUB4F, you can compare the effects of market volatilities on Principal Financial and ITUB4F 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 ITUB4F. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Financial and ITUB4F.

Diversification Opportunities for Principal Financial and ITUB4F

0.1

Correlation Coefficient

Principal Financial  ITUB4F

Average diversification

The 3 months correlation between Principal and ITUB4F is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Principal Financial Group, and ITUB4F in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITUB4F 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 ITUB4F. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITUB4F has no effect on the direction of Principal Financial i.e., Principal Financial and ITUB4F go up and down completely randomly.

Pair Corralation between Principal Financial and ITUB4F

Assuming the 90 days trading horizon Principal Financial is expected to generate 3.9 times less return on investment than ITUB4F. But when comparing it to its historical volatility, Principal Financial Group, is 13.61 times less risky than ITUB4F. It trades about 0.13 of its potential returns per unit of risk. ITUB4F is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,455  in ITUB4F on April 25, 2025 and sell it today you would earn a total of  95.00  from holding ITUB4F or generate 2.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Principal Financial Group,  vs.  ITUB4F

Principal Financial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Financial Group, are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Principal Financial is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

ITUB4F

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ITUB4F are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ITUB4F is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Principal Financial and ITUB4F

The main advantage of trading using opposite Principal Financial and ITUB4F positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal Financial position performs unexpectedly, ITUB4F 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 ITUB4F will offset losses from the drop in ITUB4F's long position.

The idea behind Principal Financial Group, and ITUB4F 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.