Correlation Between Principal Lifetime and One Choice

Can any of the company-specific risk be diversified away by investing in both Principal Lifetime and One Choice 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 One Choice 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 One Choice 2055, you can compare the effects of market volatilities on Principal Lifetime and One Choice 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 One Choice. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Lifetime and One Choice.

Diversification Opportunities for Principal Lifetime and One Choice

0.87

Correlation Coefficient

Principal Lifetime  One Choice

Very poor diversification

The 3 months correlation between Principal and One is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Principal Lifetime Hybrid and One Choice 2055 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on One Choice 2055 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 One Choice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of One Choice 2055 has no effect on the direction of Principal Lifetime i.e., Principal Lifetime and One Choice go up and down completely randomly.

Pair Corralation between Principal Lifetime and One Choice

Assuming the 90 days horizon Principal Lifetime Hybrid is expected to generate 1.05 times more return on investment than One Choice. However, Principal Lifetime is 1.05 times more volatile than One Choice 2055. It trades about 0.0 of its potential returns per unit of risk. One Choice 2055 is currently generating about -0.01 per unit of risk. If you would invest  1,485  in Principal Lifetime Hybrid on December 21, 2024 and sell it today you would lose (5.00) from holding Principal Lifetime Hybrid or give up 0.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

Principal Lifetime Hybrid  vs.  One Choice 2055

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.

One Choice 2055

Risk-Adjusted Performance

Very Weak

Over the last 90 days One Choice 2055 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, One Choice 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 Lifetime and One Choice

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

The idea behind Principal Lifetime Hybrid and One Choice 2055 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.