Correlation Between High Yield and Principal Lifetime

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

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

Diversification Opportunities for High Yield and Principal Lifetime

-0.11

Correlation Coefficient

High Yield  Principal Lifetime

Good diversification

The 3 months correlation between High and Principal is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Fund and Principal Lifetime Hybrid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Lifetime Hybrid and High Yield 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 High Yield Fund are associated (or correlated) with Principal Lifetime. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Lifetime Hybrid has no effect on the direction of High Yield i.e., High Yield and Principal Lifetime go up and down completely randomly.

Pair Corralation between High Yield and Principal Lifetime

Assuming the 90 days horizon High Yield Fund is expected to generate 0.34 times more return on investment than Principal Lifetime. However, High Yield Fund is 2.96 times less risky than Principal Lifetime. It trades about 0.2 of its potential returns per unit of risk. Principal Lifetime Hybrid is currently generating about 0.03 per unit of risk. If you would invest  802.00  in High Yield Fund on December 21, 2024 and sell it today you would earn a total of  12.00  from holding High Yield Fund or generate 1.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	77.97%
Values	Daily Returns

High Yield Fund  vs.  Principal Lifetime Hybrid

High Yield Fund

Risk-Adjusted Performance

Good

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

Principal Lifetime Hybrid

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Lifetime Hybrid are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. 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.

Pair Trading with High Yield and Principal Lifetime

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

The idea behind High Yield Fund and Principal Lifetime Hybrid 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.

Check out your portfolio center.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.