Correlation Between Principal Lifetime and Strategic Asset

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

By analyzing existing cross correlation between Principal Lifetime 2030 and Strategic Asset Management, you can compare the effects of market volatilities on Principal Lifetime and Strategic Asset 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 Strategic Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Principal Lifetime and Strategic Asset.

Diversification Opportunities for Principal Lifetime and Strategic Asset

0.98

Correlation Coefficient

Principal Lifetime  Strategic Asset

Almost no diversification

The 3 months correlation between Principal and Strategic is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Principal Lifetime 2030 and Strategic Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Asset Mana 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 2030 are associated (or correlated) with Strategic Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Asset Mana has no effect on the direction of Principal Lifetime i.e., Principal Lifetime and Strategic Asset go up and down completely randomly.

Pair Corralation between Principal Lifetime and Strategic Asset

Assuming the 90 days horizon Principal Lifetime 2030 is expected to generate 1.41 times more return on investment than Strategic Asset. However, Principal Lifetime is 1.41 times more volatile than Strategic Asset Management. It trades about 0.09 of its potential returns per unit of risk. Strategic Asset Management is currently generating about 0.07 per unit of risk. If you would invest  1,361  in Principal Lifetime 2030 on February 28, 2024 and sell it today you would earn a total of  35.00  from holding Principal Lifetime 2030 or generate 2.57% return on investment over 90 days.

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

Principal Lifetime 2030  vs.  Strategic Asset Management

Principal Lifetime 2030

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Lifetime 2030 are ranked lower than 6 (%) 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.

Strategic Asset Mana

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Strategic Asset Management are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Strategic Asset 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 Strategic Asset

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

The idea behind Principal Lifetime 2030 and Strategic Asset Management 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.