Correlation Between Principal Lifetime and Great West

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

By analyzing existing cross correlation between Principal Lifetime 2040 and Great West Real Estate, you can compare the effects of market volatilities on Principal Lifetime and Great West 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 Great West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Lifetime and Great West.

Diversification Opportunities for Principal Lifetime and Great West

0.85

Correlation Coefficient

Principal Lifetime  Great West

Very poor diversification

The 3 months correlation between Principal and Great is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Principal Lifetime 2040 and Great West Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great West Real 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 2040 are associated (or correlated) with Great West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great West Real has no effect on the direction of Principal Lifetime i.e., Principal Lifetime and Great West go up and down completely randomly.

Pair Corralation between Principal Lifetime and Great West

Assuming the 90 days horizon Principal Lifetime 2040 is expected to generate 0.6 times more return on investment than Great West. However, Principal Lifetime 2040 is 1.65 times less risky than Great West. It trades about 0.04 of its potential returns per unit of risk. Great West Real Estate is currently generating about 0.02 per unit of risk. If you would invest  1,352  in Principal Lifetime 2040 on October 4, 2024 and sell it today you would earn a total of  185.00  from holding Principal Lifetime 2040 or generate 13.68% return on investment over 90 days.

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

Principal Lifetime 2040  vs.  Great West Real Estate

Principal Lifetime 2040

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Principal Lifetime 2040 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.

Great West Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Great West Real Estate has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental 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 Great West

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

The idea behind Principal Lifetime 2040 and Great West Real Estate 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.