Correlation Between Principal Value and Principal Small

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

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

Diversification Opportunities for Principal Value and Principal Small

0.85

Correlation Coefficient

Principal Value  Principal Small

Very poor diversification

The 3 months correlation between Principal and Principal is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Principal Value ETF and Principal Small Cap Multi Fact in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Small Cap and Principal Value 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 Value ETF are associated (or correlated) with Principal Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Small Cap has no effect on the direction of Principal Value i.e., Principal Value and Principal Small go up and down completely randomly.

Pair Corralation between Principal Value and Principal Small

Allowing for the 90-day total investment horizon Principal Value is expected to generate 1.46 times less return on investment than Principal Small. But when comparing it to its historical volatility, Principal Value ETF is 1.8 times less risky than Principal Small. It trades about 0.11 of its potential returns per unit of risk. Principal Small Cap Multi Factor is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  5,386  in Principal Small Cap Multi Factor on July 2, 2025 and sell it today you would earn a total of  324.00  from holding Principal Small Cap Multi Factor or generate 6.02% return on investment over 90 days.

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

Principal Value ETF  vs.  Principal Small Cap Multi Fact

Principal Value ETF

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Value ETF are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Principal Value is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Principal Small Cap

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Small Cap Multi Factor are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Principal Small may actually be approaching a critical reversion point that can send shares even higher in October 2025.

Pair Trading with Principal Value and Principal Small

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

The idea behind Principal Value ETF and Principal Small Cap Multi Factor 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .