Correlation Between Principal Lifetime and Investment Grade
Can any of the company-specific risk be diversified away by investing in both Principal Lifetime and Investment Grade 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 Lifetime and Investment Grade into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Principal Lifetime Hybrid and Investment Grade Bond, you can compare the effects of market volatilities on Principal Lifetime and Investment Grade 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 Lifetime with a short position of Investment Grade. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Lifetime and Investment Grade.
Diversification Opportunities for Principal Lifetime and Investment Grade
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between PRINCIPAL and Investment is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Principal Lifetime Hybrid and Investment Grade Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment Grade Bond and Principal Lifetime 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 Lifetime Hybrid are associated (or correlated) with Investment Grade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment Grade Bond has no effect on the direction of Principal Lifetime i.e., Principal Lifetime and Investment Grade go up and down completely randomly.
Pair Corralation between Principal Lifetime and Investment Grade
Assuming the 90 days horizon Principal Lifetime Hybrid is expected to generate 0.83 times more return on investment than Investment Grade. However, Principal Lifetime Hybrid is 1.21 times less risky than Investment Grade. It trades about 0.31 of its potential returns per unit of risk. Investment Grade Bond is currently generating about 0.14 per unit of risk. If you would invest 1,054 in Principal Lifetime Hybrid on September 1, 2024 and sell it today you would earn a total of 21.00 from holding Principal Lifetime Hybrid or generate 1.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Principal Lifetime Hybrid vs. Investment Grade Bond
Performance |
| Timeline |
| Principal Lifetime Hybrid |
| Investment Grade Bond |
Principal Lifetime and Investment Grade Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Principal Lifetime and Investment Grade
The main advantage of trading using opposite Principal Lifetime and Investment Grade positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal Lifetime position performs unexpectedly, Investment Grade 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 Investment Grade will offset losses from the drop in Investment Grade's long position.| Principal Lifetime vs. Strategic Asset Management | Principal Lifetime vs. Strategic Asset Management | Principal Lifetime vs. International Equity Index | Principal Lifetime vs. Strategic Asset Management |
| Investment Grade vs. Fidelity Advisor Diversified | Investment Grade vs. Sentinel Small Pany | Investment Grade vs. Principal Lifetime Hybrid | Investment Grade vs. Aqr Diversified Arbitrage |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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