Correlation Between American Balanced and New Perspective
Can any of the company-specific risk be diversified away by investing in both American Balanced and New Perspective 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 New Perspective 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 New Perspective Fund, you can compare the effects of market volatilities on American Balanced and New Perspective 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 New Perspective. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and New Perspective.
Diversification Opportunities for American Balanced and New Perspective
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and New is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and New Perspective Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Perspective 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 New Perspective. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Perspective has no effect on the direction of American Balanced i.e., American Balanced and New Perspective go up and down completely randomly.
Pair Corralation between American Balanced and New Perspective
Assuming the 90 days horizon American Balanced is expected to generate 1.37 times less return on investment than New Perspective. But when comparing it to its historical volatility, American Balanced Fund is 1.67 times less risky than New Perspective. It trades about 0.1 of its potential returns per unit of risk. New Perspective Fund is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 4,568 in New Perspective Fund on August 30, 2024 and sell it today you would earn a total of 1,949 from holding New Perspective Fund or generate 42.67% 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. New Perspective Fund
Performance |
| Timeline |
| American Balanced |
| New Perspective |
American Balanced and New Perspective Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and New Perspective
The main advantage of trading using opposite American Balanced and New Perspective positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, New Perspective 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 New Perspective will offset losses from the drop in New Perspective'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 |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
Other Complementary Tools
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated | |
| Portfolio Analyzer Portfolio analysis module that provides access to portfolio diagnostics and optimization engine | |
| Fundamentals Comparison Compare fundamentals across multiple equities to find investing opportunities | |
| Idea Analyzer Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas | |
| Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account |