Correlation Between Smallcap Growth and Principal Lifetime

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

By analyzing existing cross correlation between Smallcap Growth Fund and Principal Lifetime 2030, you can compare the effects of market volatilities on Smallcap Growth 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 Smallcap Growth with a short position of Principal Lifetime. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap Growth and Principal Lifetime.

Diversification Opportunities for Smallcap Growth and Principal Lifetime

0.81

Correlation Coefficient

Smallcap Growth  Principal Lifetime

Very poor diversification

The 3 months correlation between Smallcap and Principal is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and Principal Lifetime 2030 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Lifetime 2030 and Smallcap Growth 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 Smallcap Growth Fund 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 2030 has no effect on the direction of Smallcap Growth i.e., Smallcap Growth and Principal Lifetime go up and down completely randomly.

Pair Corralation between Smallcap Growth and Principal Lifetime

Assuming the 90 days horizon Smallcap Growth Fund is expected to generate 2.76 times more return on investment than Principal Lifetime. However, Smallcap Growth is 2.76 times more volatile than Principal Lifetime 2030. It trades about 0.18 of its potential returns per unit of risk. Principal Lifetime 2030 is currently generating about 0.13 per unit of risk. If you would invest  1,521  in Smallcap Growth Fund on September 4, 2024 and sell it today you would earn a total of  207.00  from holding Smallcap Growth Fund or generate 13.61% return on investment over 90 days.

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

Smallcap Growth Fund  vs.  Principal Lifetime 2030

Smallcap Growth

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Growth Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Smallcap Growth showed solid returns over the last few months and may actually be approaching a breakup point.

Principal Lifetime 2030

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Lifetime 2030 are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking indicators, Principal Lifetime is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Smallcap Growth and Principal Lifetime

The main advantage of trading using opposite Smallcap Growth and Principal Lifetime positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap Growth 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 Smallcap Growth Fund and Principal Lifetime 2030 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.