Correlation Between Applied Finance and American Beacon
Can any of the company-specific risk be diversified away by investing in both Applied Finance and American Beacon 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 Applied Finance and American Beacon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Finance Explorer and American Beacon Small, you can compare the effects of market volatilities on Applied Finance and American Beacon 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 Applied Finance with a short position of American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Finance and American Beacon.
Diversification Opportunities for Applied Finance and American Beacon
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Applied and American is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Applied Finance Explorer and American Beacon Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Small and Applied Finance 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 Applied Finance Explorer are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Small has no effect on the direction of Applied Finance i.e., Applied Finance and American Beacon go up and down completely randomly.
Pair Corralation between Applied Finance and American Beacon
Assuming the 90 days horizon Applied Finance Explorer is expected to generate 7.81 times more return on investment than American Beacon. However, Applied Finance is 7.81 times more volatile than American Beacon Small. It trades about 0.05 of its potential returns per unit of risk. American Beacon Small is currently generating about -0.05 per unit of risk. If you would invest 2,311 in Applied Finance Explorer on September 13, 2024 and sell it today you would earn a total of 57.00 from holding Applied Finance Explorer or generate 2.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Applied Finance Explorer vs. American Beacon Small
Performance |
| Timeline |
| Applied Finance Explorer |
| American Beacon Small |
Applied Finance and American Beacon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Applied Finance and American Beacon
The main advantage of trading using opposite Applied Finance and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Finance position performs unexpectedly, American Beacon 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 American Beacon will offset losses from the drop in American Beacon's long position.| Applied Finance vs. Thrivent Small Cap | Applied Finance vs. Parnassus Endeavor Fund | Applied Finance vs. Queens Road Small | Applied Finance vs. Oberweis Small Cap Opportunities |
| American Beacon vs. Pace Smallmedium Value | American Beacon vs. Applied Finance Explorer | American Beacon vs. Vanguard Small Cap Value | American Beacon vs. Fpa Queens Road |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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