Correlation Between Lifestyle and Target Retirement
Can any of the company-specific risk be diversified away by investing in both Lifestyle and Target Retirement 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 Lifestyle and Target Retirement into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lifestyle Ii Moderate and Target Retirement 2040, you can compare the effects of market volatilities on Lifestyle and Target Retirement 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 Lifestyle with a short position of Target Retirement. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lifestyle and Target Retirement.
Diversification Opportunities for Lifestyle and Target Retirement
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Lifestyle and Target is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Lifestyle Ii Moderate and Target Retirement 2040 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target Retirement 2040 and Lifestyle 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 Lifestyle Ii Moderate are associated (or correlated) with Target Retirement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target Retirement 2040 has no effect on the direction of Lifestyle i.e., Lifestyle and Target Retirement go up and down completely randomly.
Pair Corralation between Lifestyle and Target Retirement
Assuming the 90 days horizon Lifestyle is expected to generate 1.34 times less return on investment than Target Retirement. But when comparing it to its historical volatility, Lifestyle Ii Moderate is 1.4 times less risky than Target Retirement. It trades about 0.1 of its potential returns per unit of risk. Target Retirement 2040 is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 1,143 in Target Retirement 2040 on August 28, 2024 and sell it today you would earn a total of 242.00 from holding Target Retirement 2040 or generate 21.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lifestyle Ii Moderate vs. Target Retirement 2040
Performance |
| Timeline |
| Lifestyle Ii Moderate |
| Target Retirement 2040 |
Lifestyle and Target Retirement Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lifestyle and Target Retirement
The main advantage of trading using opposite Lifestyle and Target Retirement positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lifestyle position performs unexpectedly, Target Retirement 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 Target Retirement will offset losses from the drop in Target Retirement's long position.| Lifestyle vs. Regional Bank Fund | Lifestyle vs. Regional Bank Fund | Lifestyle vs. Multimanager Lifestyle Balanced | Lifestyle vs. Multimanager Lifestyle Aggressive |
| Target Retirement vs. Income Fund Income | Target Retirement vs. Usaa Nasdaq 100 | Target Retirement vs. Victory Diversified Stock | Target Retirement vs. Intermediate Term Bond Fund |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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