Correlation Between Principal Lifetime and Capital Securities
Can any of the company-specific risk be diversified away by investing in both Principal Lifetime and Capital Securities 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 Capital Securities 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 Capital Securities Fund, you can compare the effects of market volatilities on Principal Lifetime and Capital Securities 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 Capital Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Lifetime and Capital Securities.
Diversification Opportunities for Principal Lifetime and Capital Securities
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Principal and Capital is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Principal Lifetime 2030 and Capital Securities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Securities 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 Capital Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Securities has no effect on the direction of Principal Lifetime i.e., Principal Lifetime and Capital Securities go up and down completely randomly.
Pair Corralation between Principal Lifetime and Capital Securities
Assuming the 90 days horizon Principal Lifetime 2030 is expected to generate 2.74 times more return on investment than Capital Securities. However, Principal Lifetime is 2.74 times more volatile than Capital Securities Fund. It trades about 0.25 of its potential returns per unit of risk. Capital Securities Fund is currently generating about 0.03 per unit of risk. If you would invest 1,449 in Principal Lifetime 2030 on September 2, 2024 and sell it today you would earn a total of 26.00 from holding Principal Lifetime 2030 or generate 1.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 85.71% |
| Values | Daily Returns |
Principal Lifetime 2030 vs. Capital Securities Fund
Performance |
| Timeline |
| Principal Lifetime 2030 |
| Capital Securities |
Principal Lifetime and Capital Securities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Principal Lifetime and Capital Securities
The main advantage of trading using opposite Principal Lifetime and Capital Securities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal Lifetime position performs unexpectedly, Capital Securities 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 Capital Securities will offset losses from the drop in Capital Securities' long position.| Principal Lifetime vs. Strategic Asset Management | Principal Lifetime vs. Strategic Asset Management | Principal Lifetime vs. Strategic Asset Management | Principal Lifetime vs. Strategic Asset Management |
| Capital Securities vs. Strategic Asset Management | Capital Securities vs. Strategic Asset Management | Capital Securities vs. Strategic Asset Management | Capital Securities vs. Strategic Asset Management |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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