Correlation Between Large Company and American Beacon
Can any of the company-specific risk be diversified away by investing in both Large Company 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 Large Company and American Beacon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Large Pany Value and American Beacon Small, you can compare the effects of market volatilities on Large Company 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 Large Company with a short position of American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Company and American Beacon.
Diversification Opportunities for Large Company and American Beacon
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between LARGE and American is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Large Pany Value 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 Large Company 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 Large Pany Value 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 Large Company i.e., Large Company and American Beacon go up and down completely randomly.
Pair Corralation between Large Company and American Beacon
Assuming the 90 days horizon Large Company is expected to generate 1.89 times less return on investment than American Beacon. But when comparing it to its historical volatility, Large Pany Value is 1.9 times less risky than American Beacon. It trades about 0.05 of its potential returns per unit of risk. American Beacon Small is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 2,051 in American Beacon Small on August 30, 2024 and sell it today you would earn a total of 689.00 from holding American Beacon Small or generate 33.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Large Pany Value vs. American Beacon Small
Performance |
| Timeline |
| Large Pany Value |
| American Beacon Small |
Large Company and American Beacon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Large Company and American Beacon
The main advantage of trading using opposite Large Company and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Company 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.| Large Company vs. Small Pany Fund | Large Company vs. Value Fund Investor | Large Company vs. Small Cap Value | Large Company vs. Real Estate Fund |
| American Beacon vs. American Beacon Large | American Beacon vs. Growth Fund Of | American Beacon vs. American Beacon International | American Beacon vs. Artisan Mid Cap |
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 Valuation module to check real value of public entities based on technical and fundamental data.
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