Correlation Between Principal Lifetime and Massmutual Select

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

Diversification Opportunities for Principal Lifetime and Massmutual Select

0.74

Correlation Coefficient

Principal Lifetime  Massmutual Select

Poor diversification

The 3 months correlation between Principal and Massmutual is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Principal Lifetime Hybrid and Massmutual Select Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Massmutual Select Mid 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 Massmutual Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Massmutual Select Mid has no effect on the direction of Principal Lifetime i.e., Principal Lifetime and Massmutual Select go up and down completely randomly.

Pair Corralation between Principal Lifetime and Massmutual Select

Assuming the 90 days horizon Principal Lifetime Hybrid is expected to generate 0.39 times more return on investment than Massmutual Select. However, Principal Lifetime Hybrid is 2.57 times less risky than Massmutual Select. It trades about 0.01 of its potential returns per unit of risk. Massmutual Select Mid Cap is currently generating about -0.13 per unit of risk. If you would invest  1,492  in Principal Lifetime Hybrid on October 23, 2024 and sell it today you would earn a total of  4.00  from holding Principal Lifetime Hybrid or generate 0.27% return on investment over 90 days.

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

Principal Lifetime Hybrid  vs.  Massmutual Select Mid Cap

Principal Lifetime Hybrid

Risk-Adjusted Performance

0 of 100

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.

Massmutual Select Mid

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Massmutual Select Mid Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Principal Lifetime and Massmutual Select

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

The idea behind Principal Lifetime Hybrid and Massmutual Select Mid Cap 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.