Correlation Between American Balanced and Vanguard Target
Can any of the company-specific risk be diversified away by investing in both American Balanced and Vanguard Target 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 Vanguard Target into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Balanced and Vanguard Target Retirement, you can compare the effects of market volatilities on American Balanced and Vanguard Target 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 Vanguard Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Vanguard Target.
Diversification Opportunities for American Balanced and Vanguard Target
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Vanguard is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced and Vanguard Target Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Target Reti 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 Vanguard Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Target Reti has no effect on the direction of American Balanced i.e., American Balanced and Vanguard Target go up and down completely randomly.
Pair Corralation between American Balanced and Vanguard Target
Assuming the 90 days horizon American Balanced is expected to generate 1.18 times more return on investment than Vanguard Target. However, American Balanced is 1.18 times more volatile than Vanguard Target Retirement. It trades about 0.07 of its potential returns per unit of risk. Vanguard Target Retirement is currently generating about 0.05 per unit of risk. If you would invest 3,198 in American Balanced on November 3, 2024 and sell it today you would earn a total of 335.00 from holding American Balanced or generate 10.48% 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. Vanguard Target Retirement
Performance |
| Timeline |
| American Balanced |
| Vanguard Target Reti |
American Balanced and Vanguard Target Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Vanguard Target
The main advantage of trading using opposite American Balanced and Vanguard Target positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Vanguard Target 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 Vanguard Target will offset losses from the drop in Vanguard Target'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 |
| Vanguard Target vs. Vanguard Target Retirement | Vanguard Target vs. Vanguard Target Retirement | Vanguard Target vs. Vanguard Target Retirement | Vanguard Target vs. Vanguard Target Retirement |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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