Correlation Between Equity Growth and American Balanced
Can any of the company-specific risk be diversified away by investing in both Equity Growth and American Balanced 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 Equity Growth and American Balanced into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Equity Growth Fund and American Balanced Fund, you can compare the effects of market volatilities on Equity Growth and American Balanced 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 Equity Growth with a short position of American Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Growth and American Balanced.
Diversification Opportunities for Equity Growth and American Balanced
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Equity and American is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Equity Growth Fund and American Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Balanced and Equity Growth 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 Equity Growth Fund are associated (or correlated) with American Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Balanced has no effect on the direction of Equity Growth i.e., Equity Growth and American Balanced go up and down completely randomly.
Pair Corralation between Equity Growth and American Balanced
Assuming the 90 days horizon Equity Growth Fund is expected to under-perform the American Balanced. In addition to that, Equity Growth is 1.39 times more volatile than American Balanced Fund. It trades about -0.25 of its total potential returns per unit of risk. American Balanced Fund is currently generating about -0.04 per unit of volatility. If you would invest 3,537 in American Balanced Fund on December 1, 2024 and sell it today you would lose (16.00) from holding American Balanced Fund or give up 0.45% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Equity Growth Fund vs. American Balanced Fund
Performance |
| Timeline |
| Equity Growth |
| American Balanced |
Equity Growth and American Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Equity Growth and American Balanced
The main advantage of trading using opposite Equity Growth and American Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Growth position performs unexpectedly, American Balanced 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 Balanced will offset losses from the drop in American Balanced's long position.| Equity Growth vs. Mid Cap Value | Equity Growth vs. Income Growth Fund | Equity Growth vs. Emerging Markets Fund | Equity Growth vs. Diversified Bond Fund |
| American Balanced vs. Income Fund Of | American Balanced vs. Capital Income Builder | American Balanced vs. Capital World Growth | American Balanced vs. Growth Fund Of |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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