Correlation Between Investment and New Perspective
Can any of the company-specific risk be diversified away by investing in both Investment and New Perspective 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 Investment and New Perspective into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Investment Of America and New Perspective Fund, you can compare the effects of market volatilities on Investment and New Perspective 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 Investment with a short position of New Perspective. Check out your portfolio center. Please also check ongoing floating volatility patterns of Investment and New Perspective.
Diversification Opportunities for Investment and New Perspective
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Investment and New is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Investment Of America and New Perspective Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Perspective and Investment 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 Investment Of America are associated (or correlated) with New Perspective. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Perspective has no effect on the direction of Investment i.e., Investment and New Perspective go up and down completely randomly.
Pair Corralation between Investment and New Perspective
Assuming the 90 days horizon Investment is expected to generate 2.49 times less return on investment than New Perspective. But when comparing it to its historical volatility, Investment Of America is 1.1 times less risky than New Perspective. It trades about 0.02 of its potential returns per unit of risk. New Perspective Fund is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 6,560 in New Perspective Fund on September 12, 2024 and sell it today you would earn a total of 39.00 from holding New Perspective Fund or generate 0.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Investment Of America vs. New Perspective Fund
Performance |
| Timeline |
| Investment Of America |
| New Perspective |
Investment and New Perspective Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Investment and New Perspective
The main advantage of trading using opposite Investment and New Perspective positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Investment position performs unexpectedly, New Perspective 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 New Perspective will offset losses from the drop in New Perspective's long position.| Investment vs. New World Fund | Investment vs. Washington Mutual Investors | Investment vs. Smallcap World Fund | Investment vs. Capital World Growth |
| New Perspective vs. Counterpoint Tactical Municipal | New Perspective vs. Morningstar Municipal Bond | New Perspective vs. Oklahoma Municipal Fund | New Perspective vs. Nuveen Minnesota Municipal |
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 Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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