Correlation Between Sierra E and Principal Lifetime

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

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

Diversification Opportunities for Sierra E and Principal Lifetime

0.53

Correlation Coefficient

Sierra E  Principal Lifetime

Very weak diversification

The 3 months correlation between Sierra and Principal is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Sierra E Retirement 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 Sierra E 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 Sierra E Retirement 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 Sierra E i.e., Sierra E and Principal Lifetime go up and down completely randomly.

Pair Corralation between Sierra E and Principal Lifetime

Assuming the 90 days horizon Sierra E is expected to generate 7.13 times less return on investment than Principal Lifetime. But when comparing it to its historical volatility, Sierra E Retirement is 2.18 times less risky than Principal Lifetime. It trades about 0.05 of its potential returns per unit of risk. Principal Lifetime Hybrid is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,720  in Principal Lifetime Hybrid on September 12, 2024 and sell it today you would earn a total of  99.00  from holding Principal Lifetime Hybrid or generate 5.76% return on investment over 90 days.

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

Sierra E Retirement  vs.  Principal Lifetime Hybrid

Sierra E Retirement

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sierra E Retirement are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Sierra E 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

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Lifetime Hybrid are ranked lower than 12 (%) 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 Sierra E and Principal Lifetime

The main advantage of trading using opposite Sierra E and Principal Lifetime positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sierra E 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 Sierra E Retirement 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.

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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.