Correlation Between Gmo High and Principal Lifetime

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

By analyzing existing cross correlation between Gmo High Yield and Principal Lifetime 2050, you can compare the effects of market volatilities on Gmo High 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 Gmo High with a short position of Principal Lifetime. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo High and Principal Lifetime.

Diversification Opportunities for Gmo High and Principal Lifetime

0.26

Correlation Coefficient

Gmo High  Principal Lifetime

Modest diversification

The 3 months correlation between Gmo and Principal is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Gmo High Yield and Principal Lifetime 2050 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Lifetime 2050 and Gmo High 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 Gmo High Yield 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 2050 has no effect on the direction of Gmo High i.e., Gmo High and Principal Lifetime go up and down completely randomly.

Pair Corralation between Gmo High and Principal Lifetime

Assuming the 90 days horizon Gmo High is expected to generate 1.43 times less return on investment than Principal Lifetime. But when comparing it to its historical volatility, Gmo High Yield is 2.69 times less risky than Principal Lifetime. It trades about 0.13 of its potential returns per unit of risk. Principal Lifetime 2050 is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,346  in Principal Lifetime 2050 on December 4, 2024 and sell it today you would earn a total of  376.00  from holding Principal Lifetime 2050 or generate 27.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.74%
Values	Daily Returns

Gmo High Yield  vs.  Principal Lifetime 2050

Gmo High Yield

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo High Yield are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Gmo High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Principal Lifetime 2050

Risk-Adjusted Performance

Very Weak

Over the last 90 days Principal Lifetime 2050 has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Gmo High and Principal Lifetime

The main advantage of trading using opposite Gmo High and Principal Lifetime positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gmo High 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 Gmo High Yield and Principal Lifetime 2050 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.