Correlation Between Short Duration and American Funds
Can any of the company-specific risk be diversified away by investing in both Short Duration 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 Short Duration and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Short Duration Inflation and American Funds Inflation, you can compare the effects of market volatilities on Short Duration 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 Short Duration with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short Duration and American Funds.
Diversification Opportunities for Short Duration and American Funds
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Short and American is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Short Duration Inflation and American Funds Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Inflation and Short Duration 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 Short Duration Inflation 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 Inflation has no effect on the direction of Short Duration i.e., Short Duration and American Funds go up and down completely randomly.
Pair Corralation between Short Duration and American Funds
Assuming the 90 days horizon Short Duration Inflation is expected to generate 0.5 times more return on investment than American Funds. However, Short Duration Inflation is 2.01 times less risky than American Funds. It trades about 0.12 of its potential returns per unit of risk. American Funds Inflation is currently generating about 0.04 per unit of risk. If you would invest 981.00 in Short Duration Inflation on September 12, 2024 and sell it today you would earn a total of 75.00 from holding Short Duration Inflation or generate 7.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Short Duration Inflation vs. American Funds Inflation
Performance |
| Timeline |
| Short Duration Inflation |
| American Funds Inflation |
Short Duration and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Short Duration and American Funds
The main advantage of trading using opposite Short Duration and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Duration 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.| Short Duration vs. SCOR PK | Short Duration vs. Morningstar Unconstrained Allocation | Short Duration vs. Thrivent High Yield | Short Duration vs. Via Renewables |
| American Funds vs. Vanguard Inflation Protected Securities | American Funds vs. Vanguard Inflation Protected Securities | American Funds vs. American Funds Inflation |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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