Correlation Between American Balanced and First Trust
Can any of the company-specific risk be diversified away by investing in both American Balanced and First Trust 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 American Balanced and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Balanced and First Trust Exchange Traded, you can compare the effects of market volatilities on American Balanced and First Trust 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 American Balanced with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and First Trust.
Diversification Opportunities for American Balanced and First Trust
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and First is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced and First Trust Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Exchange and American Balanced 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 American Balanced are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Exchange has no effect on the direction of American Balanced i.e., American Balanced and First Trust go up and down completely randomly.
Pair Corralation between American Balanced and First Trust
Assuming the 90 days horizon American Balanced is expected to generate 3.15 times more return on investment than First Trust. However, American Balanced is 3.15 times more volatile than First Trust Exchange Traded. It trades about 0.17 of its potential returns per unit of risk. First Trust Exchange Traded is currently generating about 0.09 per unit of risk. If you would invest 3,460 in American Balanced on November 4, 2024 and sell it today you would earn a total of 73.00 from holding American Balanced or generate 2.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Balanced vs. First Trust Exchange Traded
Performance |
| Timeline |
| American Balanced |
| First Trust Exchange |
American Balanced and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and First Trust
The main advantage of trading using opposite American Balanced and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| American Balanced vs. Income Fund Of | American Balanced vs. Capital Income Builder | American Balanced vs. Capital World Growth | American Balanced vs. Growth Fund Of |
| First Trust vs. First Trust Ultra | First Trust vs. First Trust Short | First Trust vs. First Trust Municipal | First Trust vs. First Trust Managed |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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