Can any of the company-specific risk be diversified away by investing in both PRINCIPAL LIFETIME and AMERICAN FUNDS 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 AMERICAN FUNDS 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 AMERICAN FUNDS 2010, you can compare the effects of market volatilities on PRINCIPAL LIFETIME and AMERICAN FUNDS 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 AMERICAN FUNDS. Check out your portfolio center. Please also check ongoing floating volatility patterns of PRINCIPAL LIFETIME and AMERICAN FUNDS.
Diversification Opportunities for PRINCIPAL LIFETIME and AMERICAN FUNDS
The 3 months correlation between PRINCIPAL and AMERICAN is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding PRINCIPAL LIFETIME HYBRID and AMERICAN FUNDS 2010 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMERICAN FUNDS 2010 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 AMERICAN FUNDS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMERICAN FUNDS 2010 has no effect on the direction of PRINCIPAL LIFETIME i.e., PRINCIPAL LIFETIME and AMERICAN FUNDS go up and down completely randomly.
Pair Corralation between PRINCIPAL LIFETIME and AMERICAN FUNDS
Assuming the 90 days horizon PRINCIPAL LIFETIME HYBRID is expected to generate 1.97 times more return on investment than AMERICAN FUNDS. However, PRINCIPAL LIFETIME is 1.97 times more volatile than AMERICAN FUNDS 2010. It trades about -0.01 of its potential returns per unit of risk. AMERICAN FUNDS 2010 is currently generating about -0.02 per unit of risk. If you would invest 1,334 in PRINCIPAL LIFETIME HYBRID on July 2, 2023 and sell it today you would lose (96.00) from holding PRINCIPAL LIFETIME HYBRID or give up 7.2% of portfolio value over 90 days.
Over the last 90 days PRINCIPAL LIFETIME HYBRID has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, PRINCIPAL LIFETIME is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
Over the last 90 days AMERICAN FUNDS 2010 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, AMERICAN FUNDS is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
PRINCIPAL LIFETIME and AMERICAN FUNDS Volatility Contrast
Predicted Return Density
Pair Trading with PRINCIPAL LIFETIME and AMERICAN FUNDS
The main advantage of trading using opposite PRINCIPAL LIFETIME and AMERICAN FUNDS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PRINCIPAL LIFETIME position performs unexpectedly, AMERICAN FUNDS 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 AMERICAN FUNDS will offset losses from the drop in AMERICAN FUNDS's long position.
The idea behind PRINCIPAL LIFETIME HYBRID and AMERICAN FUNDS 2010 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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