Correlation Between Mid-cap Value and Principal Lifetime

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

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

Diversification Opportunities for Mid-cap Value and Principal Lifetime

0.65

Correlation Coefficient

Mid-cap Value  Principal Lifetime

Poor diversification

The 3 months correlation between Mid-cap and Principal is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Value Profund 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 Mid-cap Value 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 Mid Cap Value Profund 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 Mid-cap Value i.e., Mid-cap Value and Principal Lifetime go up and down completely randomly.

Pair Corralation between Mid-cap Value and Principal Lifetime

Assuming the 90 days horizon Mid-cap Value is expected to generate 1.21 times less return on investment than Principal Lifetime. In addition to that, Mid-cap Value is 1.39 times more volatile than Principal Lifetime 2050. It trades about 0.03 of its total potential returns per unit of risk. Principal Lifetime 2050 is currently generating about 0.05 per unit of volatility. If you would invest  1,380  in Principal Lifetime 2050 on October 6, 2024 and sell it today you would earn a total of  251.00  from holding Principal Lifetime 2050 or generate 18.19% return on investment over 90 days.

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

Mid Cap Value Profund  vs.  Principal Lifetime 2050

Mid Cap Value

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Value Profund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Mid-cap Value 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

0 of 100

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 forward-looking 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 Mid-cap Value and Principal Lifetime

The main advantage of trading using opposite Mid-cap Value and Principal Lifetime positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid-cap Value 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 Mid Cap Value Profund 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.