Correlation Between Principal Lifetime and Aberdeen

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

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

Diversification Opportunities for Principal Lifetime and Aberdeen

0.72

Correlation Coefficient

Principal Lifetime  Aberdeen

Poor diversification

The 3 months correlation between Principal and Aberdeen is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Principal Lifetime Hybrid and Aberdeen Multi Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aberdeen Multi Cap and Principal Lifetime 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 Lifetime Hybrid are associated (or correlated) with Aberdeen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aberdeen Multi Cap has no effect on the direction of Principal Lifetime i.e., Principal Lifetime and Aberdeen go up and down completely randomly.

Pair Corralation between Principal Lifetime and Aberdeen

Assuming the 90 days horizon Principal Lifetime Hybrid is expected to generate 0.92 times more return on investment than Aberdeen. However, Principal Lifetime Hybrid is 1.09 times less risky than Aberdeen. It trades about -0.03 of its potential returns per unit of risk. Aberdeen Multi Cap Equity is currently generating about -0.13 per unit of risk. If you would invest  1,705  in Principal Lifetime Hybrid on December 30, 2024 and sell it today you would lose (31.00) from holding Principal Lifetime Hybrid or give up 1.82% of portfolio value over 90 days.

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

Principal Lifetime Hybrid  vs.  Aberdeen Multi Cap Equity

Principal Lifetime Hybrid

Risk-Adjusted Performance

Very Weak

Over the last 90 days Principal Lifetime Hybrid has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Principal Lifetime is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Aberdeen Multi Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aberdeen Multi Cap Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward 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 Lifetime and Aberdeen

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

The idea behind Principal Lifetime Hybrid and Aberdeen Multi Cap Equity 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.