Correlation Between American Balanced and Biotechnology Ultrasector
Can any of the company-specific risk be diversified away by investing in both American Balanced and Biotechnology Ultrasector 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 Biotechnology Ultrasector into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Balanced Fund and Biotechnology Ultrasector Profund, you can compare the effects of market volatilities on American Balanced and Biotechnology Ultrasector 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 Biotechnology Ultrasector. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Biotechnology Ultrasector.
Diversification Opportunities for American Balanced and Biotechnology Ultrasector
-0.05 | Correlation Coefficient |
Good diversification
The 3 months correlation between American and Biotechnology is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Biotechnology Ultrasector Prof in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biotechnology Ultrasector 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 Fund are associated (or correlated) with Biotechnology Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biotechnology Ultrasector has no effect on the direction of American Balanced i.e., American Balanced and Biotechnology Ultrasector go up and down completely randomly.
Pair Corralation between American Balanced and Biotechnology Ultrasector
Assuming the 90 days horizon American Balanced is expected to generate 1.36 times less return on investment than Biotechnology Ultrasector. But when comparing it to its historical volatility, American Balanced Fund is 3.95 times less risky than Biotechnology Ultrasector. It trades about 0.12 of its potential returns per unit of risk. Biotechnology Ultrasector Profund is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 5,988 in Biotechnology Ultrasector Profund on August 26, 2024 and sell it today you would earn a total of 524.00 from holding Biotechnology Ultrasector Profund or generate 8.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Balanced Fund vs. Biotechnology Ultrasector Prof
Performance |
| Timeline |
| American Balanced |
| Biotechnology Ultrasector |
American Balanced and Biotechnology Ultrasector Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Biotechnology Ultrasector
The main advantage of trading using opposite American Balanced and Biotechnology Ultrasector positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Biotechnology Ultrasector 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 Biotechnology Ultrasector will offset losses from the drop in Biotechnology Ultrasector's long position.The idea behind American Balanced Fund and Biotechnology Ultrasector Profund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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