Correlation Between Principal Global and Equity Income

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

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

Diversification Opportunities for Principal Global and Equity Income

0.82

Correlation Coefficient

Principal Global  Equity Income

Very poor diversification

The 3 months correlation between Principal and Equity is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Principal Global Sustainable and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income and Principal Global 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 Global Sustainable are associated (or correlated) with Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of Principal Global i.e., Principal Global and Equity Income go up and down completely randomly.

Pair Corralation between Principal Global and Equity Income

Assuming the 90 days horizon Principal Global Sustainable is expected to under-perform the Equity Income. But the mutual fund apears to be less risky and, when comparing its historical volatility, Principal Global Sustainable is 1.57 times less risky than Equity Income. The mutual fund trades about -0.21 of its potential returns per unit of risk. The Equity Income Fund is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  4,355  in Equity Income Fund on October 9, 2024 and sell it today you would lose (436.00) from holding Equity Income Fund or give up 10.01% of portfolio value over 90 days.

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

Principal Global Sustainable  vs.  Equity Income Fund

Principal Global Sus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Principal Global Sustainable has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Equity Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equity Income Fund 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 Principal Global and Equity Income

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

The idea behind Principal Global Sustainable and Equity Income Fund 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..