Correlation Between American Balanced and American Funds
Can any of the company-specific risk be diversified away by investing in both American Balanced 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 American Balanced and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Balanced Fund and American Funds Fundamental, you can compare the effects of market volatilities on American Balanced 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 American Balanced with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and American Funds.
Diversification Opportunities for American Balanced and American Funds
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and American is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and American Funds Fundamental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Funda and American Balanced 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 Balanced Fund 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 Funda has no effect on the direction of American Balanced i.e., American Balanced and American Funds go up and down completely randomly.
Pair Corralation between American Balanced and American Funds
Assuming the 90 days horizon American Balanced is expected to generate 1.56 times less return on investment than American Funds. But when comparing it to its historical volatility, American Balanced Fund is 1.59 times less risky than American Funds. It trades about 0.12 of its potential returns per unit of risk. American Funds Fundamental is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 7,058 in American Funds Fundamental on August 25, 2024 and sell it today you would earn a total of 1,722 from holding American Funds Fundamental or generate 24.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Balanced Fund vs. American Funds Fundamental
Performance |
| Timeline |
| American Balanced |
| American Funds Funda |
American Balanced and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and American Funds
The main advantage of trading using opposite American Balanced and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced 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.| American Balanced vs. Income Fund Of | American Balanced vs. Capital Income Builder | American Balanced vs. Capital World Growth | American Balanced vs. Growth Fund Of |
| American Funds vs. Income Fund Of | American Funds vs. New World Fund | American Funds vs. American Mutual Fund | American Funds 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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