Correlation Between Short-term Income and Principal Lifetime

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

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

Diversification Opportunities for Short-term Income and Principal Lifetime

-0.62

Correlation Coefficient

Short-term Income  Principal Lifetime

Excellent diversification

The 3 months correlation between Short-term and Principal is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Income 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 Short-term Income 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 Short Term Income 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 Short-term Income i.e., Short-term Income and Principal Lifetime go up and down completely randomly.

Pair Corralation between Short-term Income and Principal Lifetime

Assuming the 90 days horizon Short Term Income Fund is expected to generate 0.08 times more return on investment than Principal Lifetime. However, Short Term Income Fund is 12.98 times less risky than Principal Lifetime. It trades about 0.12 of its potential returns per unit of risk. Principal Lifetime Hybrid is currently generating about -0.07 per unit of risk. If you would invest  1,191  in Short Term Income Fund on January 24, 2025 and sell it today you would earn a total of  12.00  from holding Short Term Income Fund or generate 1.01% return on investment over 90 days.

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

Short Term Income Fund  vs.  Principal Lifetime Hybrid

Short Term Income

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Short Term Income Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Short-term Income 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

Very Weak

Over the last 90 days Principal Lifetime Hybrid has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Short-term Income and Principal Lifetime

The main advantage of trading using opposite Short-term Income and Principal Lifetime positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short-term Income 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 Short Term Income 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.

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.