Correlation Between Global Diversified and Principal Capital

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

By analyzing existing cross correlation between Global Diversified Income and Principal Capital Appreciation, you can compare the effects of market volatilities on Global Diversified and Principal Capital 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 Global Diversified with a short position of Principal Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Diversified and Principal Capital.

Diversification Opportunities for Global Diversified and Principal Capital

-0.34

Correlation Coefficient

Global Diversified  Principal Capital

Very good diversification

The 3 months correlation between Global and Principal is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Global Diversified Income and Principal Capital Appreciation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Capital and Global Diversified 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 Global Diversified Income are associated (or correlated) with Principal Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Capital has no effect on the direction of Global Diversified i.e., Global Diversified and Principal Capital go up and down completely randomly.

Pair Corralation between Global Diversified and Principal Capital

Assuming the 90 days horizon Global Diversified is expected to generate 3.66 times less return on investment than Principal Capital. But when comparing it to its historical volatility, Global Diversified Income is 3.79 times less risky than Principal Capital. It trades about 0.16 of its potential returns per unit of risk. Principal Capital Appreciation is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  6,419  in Principal Capital Appreciation on September 4, 2024 and sell it today you would earn a total of  2,183  from holding Principal Capital Appreciation or generate 34.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

Global Diversified Income  vs.  Principal Capital Appreciation

Global Diversified Income

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Global Diversified Income are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Global Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Principal Capital

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Capital Appreciation are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Principal Capital may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Global Diversified and Principal Capital

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

The idea behind Global Diversified Income and Principal Capital Appreciation 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.