Correlation Between Income Fund and Principal Capital
Can any of the company-specific risk be diversified away by investing in both Income Fund and Principal Capital 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 Income Fund and Principal Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Income Fund Class and Principal Capital Appreciation, you can compare the effects of market volatilities on Income Fund and Principal Capital 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 Income Fund with a short position of Principal Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Fund and Principal Capital.
Diversification Opportunities for Income Fund and Principal Capital
-0.72 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Income and Principal is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Income Fund Class and Principal Capital Appreciation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Capital and Income Fund 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 Income Fund Class are associated (or correlated) with Principal Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Capital has no effect on the direction of Income Fund i.e., Income Fund and Principal Capital go up and down completely randomly.
Pair Corralation between Income Fund and Principal Capital
Assuming the 90 days horizon Income Fund is expected to generate 4.09 times less return on investment than Principal Capital. But when comparing it to its historical volatility, Income Fund Class is 2.58 times less risky than Principal Capital. It trades about 0.09 of its potential returns per unit of risk. Principal Capital Appreciation is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 7,452 in Principal Capital Appreciation on September 1, 2024 and sell it today you would earn a total of 1,150 from holding Principal Capital Appreciation or generate 15.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Income Fund Class vs. Principal Capital Appreciation
Performance |
| Timeline |
| Income Fund Class |
| Principal Capital |
Income Fund and Principal Capital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Income Fund and Principal Capital
The main advantage of trading using opposite Income Fund and Principal Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Fund position performs unexpectedly, Principal Capital 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 Capital will offset losses from the drop in Principal Capital's long position.| Income Fund vs. Strategic Asset Management | Income Fund vs. Strategic Asset Management | Income Fund vs. Strategic Asset Management | Income Fund vs. Strategic Asset Management |
| Principal Capital vs. Equity Income Fund | Principal Capital vs. Diversified International Fund | Principal Capital vs. Strategic Asset Management | Principal Capital vs. Income Fund Class |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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