Correlation Between American Funds and Short-term Bond
Can any of the company-specific risk be diversified away by investing in both American Funds and Short-term Bond 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 Funds and Short-term Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds Fundamental and Short Term Bond Fund, you can compare the effects of market volatilities on American Funds and Short-term Bond 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 Funds with a short position of Short-term Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Short-term Bond.
Diversification Opportunities for American Funds and Short-term Bond
-0.43 | Correlation Coefficient |
Very good diversification
The 3 months correlation between American and Short-term is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Fundamental and Short Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Bond and American Funds 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 Funds Fundamental are associated (or correlated) with Short-term Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Bond has no effect on the direction of American Funds i.e., American Funds and Short-term Bond go up and down completely randomly.
Pair Corralation between American Funds and Short-term Bond
Assuming the 90 days horizon American Funds Fundamental is expected to generate 7.43 times more return on investment than Short-term Bond. However, American Funds is 7.43 times more volatile than Short Term Bond Fund. It trades about 0.28 of its potential returns per unit of risk. Short Term Bond Fund is currently generating about -0.05 per unit of risk. If you would invest 8,508 in American Funds Fundamental on September 4, 2024 and sell it today you would earn a total of 368.00 from holding American Funds Fundamental or generate 4.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Fundamental vs. Short Term Bond Fund
Performance |
| Timeline |
| American Funds Funda |
| Short Term Bond |
American Funds and Short-term Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Short-term Bond
The main advantage of trading using opposite American Funds and Short-term Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Short-term Bond 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 Short-term Bond will offset losses from the drop in Short-term Bond's long position.| American Funds vs. Prudential Government Income | American Funds vs. Short Term Government Fund | American Funds vs. Dreyfus Government Cash | American Funds vs. Us Government Plus |
| Short-term Bond vs. Lord Abbett High | Short-term Bond vs. Pace High Yield | Short-term Bond vs. T Rowe Price | Short-term Bond vs. Artisan High Income |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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