Correlation Between Principal Capital and Enhanced Fixed

Can any of the company-specific risk be diversified away by investing in both Principal Capital and Enhanced Fixed 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 Capital and Enhanced Fixed into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Principal Capital Appreciation and Enhanced Fixed Income, you can compare the effects of market volatilities on Principal Capital and Enhanced Fixed 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 Capital with a short position of Enhanced Fixed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Capital and Enhanced Fixed.

Diversification Opportunities for Principal Capital and Enhanced Fixed

-0.01

Correlation Coefficient

Principal Capital  Enhanced Fixed

Good diversification

The 3 months correlation between Principal and Enhanced is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Principal Capital Appreciation and Enhanced Fixed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enhanced Fixed Income and Principal Capital 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 Capital Appreciation are associated (or correlated) with Enhanced Fixed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enhanced Fixed Income has no effect on the direction of Principal Capital i.e., Principal Capital and Enhanced Fixed go up and down completely randomly.

Pair Corralation between Principal Capital and Enhanced Fixed

Assuming the 90 days horizon Principal Capital Appreciation is expected to generate 2.02 times more return on investment than Enhanced Fixed. However, Principal Capital is 2.02 times more volatile than Enhanced Fixed Income. It trades about 0.06 of its potential returns per unit of risk. Enhanced Fixed Income is currently generating about 0.03 per unit of risk. If you would invest  3,183  in Principal Capital Appreciation on October 11, 2024 and sell it today you would earn a total of  153.00  from holding Principal Capital Appreciation or generate 4.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	18.72%
Values	Daily Returns

Principal Capital Appreciation  vs.  Enhanced Fixed Income

Principal Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Principal Capital Appreciation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Principal Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Enhanced Fixed Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enhanced Fixed Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Enhanced Fixed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Principal Capital and Enhanced Fixed

The main advantage of trading using opposite Principal Capital and Enhanced Fixed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal Capital position performs unexpectedly, Enhanced Fixed 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 Enhanced Fixed will offset losses from the drop in Enhanced Fixed's long position.

The idea behind Principal Capital Appreciation and Enhanced Fixed Income 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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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.