Correlation Between Principal Lifetime and Absolute Convertible
Can any of the company-specific risk be diversified away by investing in both Principal Lifetime and Absolute Convertible 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 Absolute Convertible into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Principal Lifetime 2030 and Absolute Convertible Arbitrage, you can compare the effects of market volatilities on Principal Lifetime and Absolute Convertible 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 Absolute Convertible. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Lifetime and Absolute Convertible.
Diversification Opportunities for Principal Lifetime and Absolute Convertible
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Principal and Absolute is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Principal Lifetime 2030 and Absolute Convertible Arbitrage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absolute Convertible 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 2030 are associated (or correlated) with Absolute Convertible. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absolute Convertible has no effect on the direction of Principal Lifetime i.e., Principal Lifetime and Absolute Convertible go up and down completely randomly.
Pair Corralation between Principal Lifetime and Absolute Convertible
Assuming the 90 days horizon Principal Lifetime 2030 is expected to generate 8.86 times more return on investment than Absolute Convertible. However, Principal Lifetime is 8.86 times more volatile than Absolute Convertible Arbitrage. It trades about 0.1 of its potential returns per unit of risk. Absolute Convertible Arbitrage is currently generating about 0.56 per unit of risk. If you would invest 1,317 in Principal Lifetime 2030 on September 4, 2024 and sell it today you would earn a total of 158.00 from holding Principal Lifetime 2030 or generate 12.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 98.38% |
| Values | Daily Returns |
Principal Lifetime 2030 vs. Absolute Convertible Arbitrage
Performance |
| Timeline |
| Principal Lifetime 2030 |
| Absolute Convertible |
Principal Lifetime and Absolute Convertible Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Principal Lifetime and Absolute Convertible
The main advantage of trading using opposite Principal Lifetime and Absolute Convertible positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal Lifetime position performs unexpectedly, Absolute Convertible 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 Absolute Convertible will offset losses from the drop in Absolute Convertible's long position.The idea behind Principal Lifetime 2030 and Absolute Convertible Arbitrage 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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