Correlation Between Income Fund and American Funds
Can any of the company-specific risk be diversified away by investing in both Income Fund and American Funds 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 Income Fund and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Income Fund Of and American Funds 2040, you can compare the effects of market volatilities on Income Fund and American Funds 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 Income Fund with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Fund and American Funds.
Diversification Opportunities for Income Fund and American Funds
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Income and American is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Income Fund Of and American Funds 2040 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2040 and Income Fund 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 Income Fund Of are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds 2040 has no effect on the direction of Income Fund i.e., Income Fund and American Funds go up and down completely randomly.
Pair Corralation between Income Fund and American Funds
Assuming the 90 days horizon Income Fund is expected to generate 1.25 times less return on investment than American Funds. But when comparing it to its historical volatility, Income Fund Of is 1.39 times less risky than American Funds. It trades about 0.16 of its potential returns per unit of risk. American Funds 2040 is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 1,703 in American Funds 2040 on August 25, 2024 and sell it today you would earn a total of 429.00 from holding American Funds 2040 or generate 25.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Income Fund Of vs. American Funds 2040
Performance |
| Timeline |
| Income Fund |
| American Funds 2040 |
Income Fund and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Income Fund and American Funds
The main advantage of trading using opposite Income Fund and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Fund position performs unexpectedly, American Funds 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 Funds will offset losses from the drop in American Funds' long position.| Income Fund vs. Dreyfus Government Cash | Income Fund vs. Lord Abbett Government | Income Fund vs. Virtus Seix Government | Income Fund vs. Ab Government Exchange |
| American Funds vs. Franklin Growth Opportunities | American Funds vs. Qs Moderate Growth | American Funds vs. Rational Defensive Growth | American Funds vs. Mid Cap Growth |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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