Correlation Between American Balanced and Equity Growth
Can any of the company-specific risk be diversified away by investing in both American Balanced and Equity Growth 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 Equity Growth 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 Equity Growth Fund, you can compare the effects of market volatilities on American Balanced and Equity Growth 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 Equity Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Equity Growth.
Diversification Opportunities for American Balanced and Equity Growth
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and Equity is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Equity Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth 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 Equity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth has no effect on the direction of American Balanced i.e., American Balanced and Equity Growth go up and down completely randomly.
Pair Corralation between American Balanced and Equity Growth
Assuming the 90 days horizon American Balanced is expected to generate 1.5 times less return on investment than Equity Growth. But when comparing it to its historical volatility, American Balanced Fund is 1.54 times less risky than Equity Growth. It trades about 0.11 of its potential returns per unit of risk. Equity Growth Fund is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 2,982 in Equity Growth Fund on September 3, 2024 and sell it today you would earn a total of 473.00 from holding Equity Growth Fund or generate 15.86% 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. Equity Growth Fund
Performance |
| Timeline |
| American Balanced |
| Equity Growth |
American Balanced and Equity Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Equity Growth
The main advantage of trading using opposite American Balanced and Equity Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Equity Growth 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 Equity Growth will offset losses from the drop in Equity Growth's long position.| American Balanced vs. James Balanced Golden | American Balanced vs. T Rowe Price | American Balanced vs. Large Cap Fund | American Balanced vs. Blackrock Hi Yld |
| Equity Growth vs. Blrc Sgy Mnp | Equity Growth vs. Maryland Tax Free Bond | Equity Growth vs. Ambrus Core Bond | Equity Growth vs. Ab Bond 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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