Correlation Between Commodities Strategy and Principal Lifetime
Can any of the company-specific risk be diversified away by investing in both Commodities Strategy and Principal Lifetime 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 Commodities Strategy and Principal Lifetime into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Commodities Strategy Fund and Principal Lifetime Hybrid, you can compare the effects of market volatilities on Commodities Strategy and Principal Lifetime 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 Commodities Strategy with a short position of Principal Lifetime. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commodities Strategy and Principal Lifetime.
Diversification Opportunities for Commodities Strategy and Principal Lifetime
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Commodities and Principal is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Commodities Strategy Fund and Principal Lifetime Hybrid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Lifetime Hybrid and Commodities Strategy 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 Commodities Strategy Fund are associated (or correlated) with Principal Lifetime. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Lifetime Hybrid has no effect on the direction of Commodities Strategy i.e., Commodities Strategy and Principal Lifetime go up and down completely randomly.
Pair Corralation between Commodities Strategy and Principal Lifetime
Assuming the 90 days horizon Commodities Strategy Fund is expected to under-perform the Principal Lifetime. In addition to that, Commodities Strategy is 1.8 times more volatile than Principal Lifetime Hybrid. It trades about -0.08 of its total potential returns per unit of risk. Principal Lifetime Hybrid is currently generating about 0.33 per unit of volatility. If you would invest 1,447 in Principal Lifetime Hybrid on September 3, 2024 and sell it today you would earn a total of 45.00 from holding Principal Lifetime Hybrid or generate 3.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Commodities Strategy Fund vs. Principal Lifetime Hybrid
Performance |
| Timeline |
| Commodities Strategy |
| Principal Lifetime Hybrid |
Commodities Strategy and Principal Lifetime Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commodities Strategy and Principal Lifetime
The main advantage of trading using opposite Commodities Strategy and Principal Lifetime positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commodities Strategy position performs unexpectedly, Principal Lifetime 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 Principal Lifetime will offset losses from the drop in Principal Lifetime's long position.The idea behind Commodities Strategy Fund and Principal Lifetime Hybrid 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.
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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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