Correlation Between New Perspective and Investment
Can any of the company-specific risk be diversified away by investing in both New Perspective and Investment 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 New Perspective and Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New Perspective Fund and Investment Of America, you can compare the effects of market volatilities on New Perspective and Investment 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 New Perspective with a short position of Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Perspective and Investment.
Diversification Opportunities for New Perspective and Investment
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between New and Investment is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding New Perspective Fund and Investment Of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment Of America and New Perspective 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 New Perspective Fund are associated (or correlated) with Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment Of America has no effect on the direction of New Perspective i.e., New Perspective and Investment go up and down completely randomly.
Pair Corralation between New Perspective and Investment
Assuming the 90 days horizon New Perspective is expected to generate 4.15 times less return on investment than Investment. But when comparing it to its historical volatility, New Perspective Fund is 1.13 times less risky than Investment. It trades about 0.03 of its potential returns per unit of risk. Investment Of America is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 6,128 in Investment Of America on August 28, 2024 and sell it today you would earn a total of 135.00 from holding Investment Of America or generate 2.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
New Perspective Fund vs. Investment Of America
Performance |
| Timeline |
| New Perspective |
| Investment Of America |
New Perspective and Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New Perspective and Investment
The main advantage of trading using opposite New Perspective and Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Perspective position performs unexpectedly, Investment 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 Investment will offset losses from the drop in Investment's long position.| New Perspective vs. Growth Fund Of | New Perspective vs. American Funds Fundamental | New Perspective vs. Investment Of America | New Perspective vs. Smallcap World Fund |
| Investment vs. Income Fund Of | Investment vs. New World Fund | Investment vs. American Mutual Fund | Investment vs. American Mutual Fund |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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