Correlation Between American Beacon and Icon Equity
Can any of the company-specific risk be diversified away by investing in both American Beacon and Icon Equity 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 Beacon and Icon Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Beacon Balanced and Icon Equity Income, you can compare the effects of market volatilities on American Beacon and Icon Equity 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 Beacon with a short position of Icon Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Beacon and Icon Equity.
Diversification Opportunities for American Beacon and Icon Equity
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and Icon is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding American Beacon Balanced and Icon Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Icon Equity Income and American Beacon 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 Beacon Balanced are associated (or correlated) with Icon Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Icon Equity Income has no effect on the direction of American Beacon i.e., American Beacon and Icon Equity go up and down completely randomly.
Pair Corralation between American Beacon and Icon Equity
Assuming the 90 days horizon American Beacon is expected to generate 1.11 times less return on investment than Icon Equity. But when comparing it to its historical volatility, American Beacon Balanced is 1.76 times less risky than Icon Equity. It trades about 0.25 of its potential returns per unit of risk. Icon Equity Income is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 1,688 in Icon Equity Income on August 28, 2024 and sell it today you would earn a total of 50.00 from holding Icon Equity Income or generate 2.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
American Beacon Balanced vs. Icon Equity Income
Performance |
| Timeline |
| American Beacon Balanced |
| Icon Equity Income |
American Beacon and Icon Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Beacon and Icon Equity
The main advantage of trading using opposite American Beacon and Icon Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Beacon position performs unexpectedly, Icon Equity 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 Icon Equity will offset losses from the drop in Icon Equity's long position.| American Beacon vs. American Beacon International | American Beacon vs. American Beacon Large | American Beacon vs. American Beacon Small | American Beacon vs. Dreyfus Opportunistic Midcap |
| Icon Equity vs. Astor Longshort Fund | Icon Equity vs. Barings Active Short | Icon Equity vs. Old Westbury Short Term | Icon Equity vs. Nuveen Short Term |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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