Correlation Between Microsoft and Principal Lifetime

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

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

Diversification Opportunities for Microsoft and Principal Lifetime

0.04

Correlation Coefficient

Microsoft  Principal Lifetime

Significant diversification

The 3 months correlation between Microsoft and Principal is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Principal Lifetime 2040 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Lifetime 2040 and Microsoft 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 Microsoft 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 2040 has no effect on the direction of Microsoft i.e., Microsoft and Principal Lifetime go up and down completely randomly.

Pair Corralation between Microsoft and Principal Lifetime

Given the investment horizon of 90 days Microsoft is expected to generate 2.0 times more return on investment than Principal Lifetime. However, Microsoft is 2.0 times more volatile than Principal Lifetime 2040. It trades about 0.09 of its potential returns per unit of risk. Principal Lifetime 2040 is currently generating about 0.04 per unit of risk. If you would invest  23,537  in Microsoft on October 4, 2024 and sell it today you would earn a total of  18,613  from holding Microsoft or generate 79.08% return on investment over 90 days.

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

Microsoft  vs.  Principal Lifetime 2040

Microsoft

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Principal Lifetime 2040

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Principal Lifetime 2040 has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic 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 Microsoft and Principal Lifetime

The main advantage of trading using opposite Microsoft and Principal Lifetime positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft and Principal Lifetime 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.