Correlation Between Principal Fds and Thornburg

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

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

Diversification Opportunities for Principal Fds and Thornburg

0.4

Correlation Coefficient

Principal Fds  Thornburg

Very weak diversification

The 3 months correlation between Principal and Thornburg is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Principal Fds Money and Thornburg E Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thornburg E Growth and Principal Fds 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 Fds Money are associated (or correlated) with Thornburg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thornburg E Growth has no effect on the direction of Principal Fds i.e., Principal Fds and Thornburg go up and down completely randomly.

Pair Corralation between Principal Fds and Thornburg

Assuming the 90 days horizon Principal Fds is expected to generate 8.58 times less return on investment than Thornburg. But when comparing it to its historical volatility, Principal Fds Money is 1.15 times less risky than Thornburg. It trades about 0.01 of its potential returns per unit of risk. Thornburg E Growth is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,555  in Thornburg E Growth on October 10, 2024 and sell it today you would earn a total of  1,136  from holding Thornburg E Growth or generate 44.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.8%
Values	Daily Returns

Principal Fds Money  vs.  Thornburg E Growth

Principal Fds Money

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Fds Money are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Principal Fds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Thornburg E Growth

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Thornburg E Growth are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Thornburg 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 Fds and Thornburg

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

The idea behind Principal Fds Money and Thornburg E Growth 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.