Correlation Between American Balanced and Hennessy Equity
Can any of the company-specific risk be diversified away by investing in both American Balanced and Hennessy Equity 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 Hennessy Equity 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 Hennessy Equity And, you can compare the effects of market volatilities on American Balanced and Hennessy Equity 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 Hennessy Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Hennessy Equity.
Diversification Opportunities for American Balanced and Hennessy Equity
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Hennessy is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Hennessy Equity And in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Equity And 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 Hennessy Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Equity And has no effect on the direction of American Balanced i.e., American Balanced and Hennessy Equity go up and down completely randomly.
Pair Corralation between American Balanced and Hennessy Equity
Assuming the 90 days horizon American Balanced Fund is expected to generate 0.86 times more return on investment than Hennessy Equity. However, American Balanced Fund is 1.16 times less risky than Hennessy Equity. It trades about 0.1 of its potential returns per unit of risk. Hennessy Equity And is currently generating about 0.05 per unit of risk. If you would invest 2,836 in American Balanced Fund on September 2, 2024 and sell it today you would earn a total of 854.00 from holding American Balanced Fund or generate 30.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Balanced Fund vs. Hennessy Equity And
Performance |
| Timeline |
| American Balanced |
| Hennessy Equity And |
American Balanced and Hennessy Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Hennessy Equity
The main advantage of trading using opposite American Balanced and Hennessy Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Hennessy Equity 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 Hennessy Equity will offset losses from the drop in Hennessy Equity's 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 |
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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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