Correlation Between Principal Lifetime and Small Cap
Can any of the company-specific risk be diversified away by investing in both Principal Lifetime and Small Cap 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 Small Cap 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 Small Cap Index, you can compare the effects of market volatilities on Principal Lifetime and Small Cap 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 Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Lifetime and Small Cap.
Diversification Opportunities for Principal Lifetime and Small Cap
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between PRINCIPAL and Small is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Principal Lifetime Hybrid and Small Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Index 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Index has no effect on the direction of Principal Lifetime i.e., Principal Lifetime and Small Cap go up and down completely randomly.
Pair Corralation between Principal Lifetime and Small Cap
Assuming the 90 days horizon Principal Lifetime is expected to generate 3.57 times less return on investment than Small Cap. But when comparing it to its historical volatility, Principal Lifetime Hybrid is 4.21 times less risky than Small Cap. It trades about 0.13 of its potential returns per unit of risk. Small Cap Index is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 1,489 in Small Cap Index on September 2, 2024 and sell it today you would earn a total of 302.00 from holding Small Cap Index or generate 20.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Principal Lifetime Hybrid vs. Small Cap Index
Performance |
| Timeline |
| Principal Lifetime Hybrid |
| Small Cap Index |
Principal Lifetime and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Principal Lifetime and Small Cap
The main advantage of trading using opposite Principal Lifetime and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal Lifetime position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| Principal Lifetime vs. Transamerica Intermediate Muni | Principal Lifetime vs. Calamos Short Term Bond | Principal Lifetime vs. Artisan High Income | Principal Lifetime vs. Federated Ohio Municipal |
| Small Cap vs. Mid Cap Index | Small Cap vs. Mid Cap Strategic | Small Cap vs. Valic Company I | Small Cap vs. Valic Company I |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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