Correlation Between Principal Global and Midcap Growth

Can any of the company-specific risk be diversified away by investing in both Principal Global and Midcap Growth 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 Midcap Growth 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 Midcap Growth Fund, you can compare the effects of market volatilities on Principal Global and Midcap Growth 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 Midcap Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Global and Midcap Growth.

Diversification Opportunities for Principal Global and Midcap Growth

0.22

Correlation Coefficient

Principal Global  Midcap Growth

Modest diversification

The 3 months correlation between Principal and Midcap is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Principal Global Sustainable and Midcap Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Growth 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 Midcap Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Growth has no effect on the direction of Principal Global i.e., Principal Global and Midcap Growth go up and down completely randomly.

Pair Corralation between Principal Global and Midcap Growth

Assuming the 90 days horizon Principal Global Sustainable is expected to generate 0.6 times more return on investment than Midcap Growth. However, Principal Global Sustainable is 1.68 times less risky than Midcap Growth. It trades about 0.1 of its potential returns per unit of risk. Midcap Growth Fund is currently generating about -0.1 per unit of risk. If you would invest  1,036  in Principal Global Sustainable on December 23, 2024 and sell it today you would earn a total of  50.00  from holding Principal Global Sustainable or generate 4.83% return on investment over 90 days.

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

Principal Global Sustainable  vs.  Midcap Growth Fund

Principal Global Sus

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Global Sustainable are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Principal Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Midcap Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Midcap Growth Fund 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 Principal Global and Midcap Growth

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

The idea behind Principal Global Sustainable and Midcap Growth 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.