Correlation Between Target Retirement and Permanent Portfolio

Can any of the company-specific risk be diversified away by investing in both Target Retirement and Permanent Portfolio 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 Target Retirement and Permanent Portfolio into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Target Retirement 2040 and Permanent Portfolio Class, you can compare the effects of market volatilities on Target Retirement and Permanent Portfolio 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 Target Retirement with a short position of Permanent Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target Retirement and Permanent Portfolio.

Diversification Opportunities for Target Retirement and Permanent Portfolio

0.77

Correlation Coefficient

Target Retirement  Permanent Portfolio

Poor diversification

The 3 months correlation between Target and Permanent is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Target Retirement 2040 and Permanent Portfolio Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permanent Portfolio Class and Target Retirement 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 Target Retirement 2040 are associated (or correlated) with Permanent Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permanent Portfolio Class has no effect on the direction of Target Retirement i.e., Target Retirement and Permanent Portfolio go up and down completely randomly.

Pair Corralation between Target Retirement and Permanent Portfolio

Assuming the 90 days horizon Target Retirement 2040 is expected to generate 1.26 times more return on investment than Permanent Portfolio. However, Target Retirement is 1.26 times more volatile than Permanent Portfolio Class. It trades about 0.21 of its potential returns per unit of risk. Permanent Portfolio Class is currently generating about 0.18 per unit of risk. If you would invest  1,325  in Target Retirement 2040 on May 5, 2025 and sell it today you would earn a total of  83.00  from holding Target Retirement 2040 or generate 6.26% return on investment over 90 days.

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

Target Retirement 2040  vs.  Permanent Portfolio Class

Target Retirement 2040

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Target Retirement 2040 are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Target Retirement is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Permanent Portfolio Class

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Permanent Portfolio Class are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Permanent Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Target Retirement and Permanent Portfolio

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

The idea behind Target Retirement 2040 and Permanent Portfolio Class 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.