Correlation Between Principal Lifetime and General American

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

Diversification Opportunities for Principal Lifetime and General American

0.61

Correlation Coefficient

Principal Lifetime  General American

Poor diversification

The 3 months correlation between Principal and General is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Principal Lifetime Hybrid and General American Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General American Inv 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 General American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General American Inv has no effect on the direction of Principal Lifetime i.e., Principal Lifetime and General American go up and down completely randomly.

Pair Corralation between Principal Lifetime and General American

Assuming the 90 days horizon Principal Lifetime is expected to generate 2.13 times less return on investment than General American. But when comparing it to its historical volatility, Principal Lifetime Hybrid is 1.77 times less risky than General American. It trades about 0.04 of its potential returns per unit of risk. General American Investors is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,398  in General American Investors on February 7, 2024 and sell it today you would earn a total of  1,236  from holding General American Investors or generate 28.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Principal Lifetime Hybrid  vs.  General American Investors

Principal Lifetime Hybrid

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Lifetime Hybrid are ranked lower than 7 (%) 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.

General American Inv

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General American Investors are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, General American 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 General American

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

The idea behind Principal Lifetime Hybrid and General American Investors 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.