Correlation Between Multimanager Lifestyle and Target Retirement

Can any of the company-specific risk be diversified away by investing in both Multimanager Lifestyle and Target Retirement 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 Multimanager Lifestyle and Target Retirement into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Multimanager Lifestyle Moderate and Target Retirement 2040, you can compare the effects of market volatilities on Multimanager Lifestyle and Target Retirement 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 Multimanager Lifestyle with a short position of Target Retirement. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multimanager Lifestyle and Target Retirement.

Diversification Opportunities for Multimanager Lifestyle and Target Retirement

0.89

Correlation Coefficient

Multimanager Lifestyle  Target Retirement

Very poor diversification

The 3 months correlation between Multimanager and Target is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Multimanager Lifestyle Moderat and Target Retirement 2040 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target Retirement 2040 and Multimanager Lifestyle 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 Multimanager Lifestyle Moderate are associated (or correlated) with Target Retirement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target Retirement 2040 has no effect on the direction of Multimanager Lifestyle i.e., Multimanager Lifestyle and Target Retirement go up and down completely randomly.

Pair Corralation between Multimanager Lifestyle and Target Retirement

Assuming the 90 days horizon Multimanager Lifestyle is expected to generate 1.69 times less return on investment than Target Retirement. But when comparing it to its historical volatility, Multimanager Lifestyle Moderate is 1.5 times less risky than Target Retirement. It trades about 0.08 of its potential returns per unit of risk. Target Retirement 2040 is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,083  in Target Retirement 2040 on October 22, 2024 and sell it today you would earn a total of  233.00  from holding Target Retirement 2040 or generate 21.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Multimanager Lifestyle Moderat  vs.  Target Retirement 2040

Multimanager Lifestyle

Risk-Adjusted Performance

0 of 100

Very Weak

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

Target Retirement 2040

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Target Retirement 2040 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Target Retirement is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Multimanager Lifestyle and Target Retirement

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

The idea behind Multimanager Lifestyle Moderate and Target Retirement 2040 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.