Correlation Between American Balanced and Asset Allocation
Can any of the company-specific risk be diversified away by investing in both American Balanced and Asset Allocation 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 Asset Allocation 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 Asset Allocation Fund, you can compare the effects of market volatilities on American Balanced and Asset Allocation 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 Asset Allocation. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Balanced and Asset Allocation.
Diversification Opportunities for American Balanced and Asset Allocation
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and Asset is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding American Balanced Fund and Asset Allocation Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asset Allocation 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 Asset Allocation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asset Allocation has no effect on the direction of American Balanced i.e., American Balanced and Asset Allocation go up and down completely randomly.
Pair Corralation between American Balanced and Asset Allocation
Assuming the 90 days horizon American Balanced is expected to generate 1.28 times less return on investment than Asset Allocation. But when comparing it to its historical volatility, American Balanced Fund is 1.11 times less risky than Asset Allocation. It trades about 0.08 of its potential returns per unit of risk. Asset Allocation Fund is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 1,227 in Asset Allocation Fund on August 27, 2024 and sell it today you would earn a total of 13.00 from holding Asset Allocation Fund or generate 1.06% 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. Asset Allocation Fund
Performance |
| Timeline |
| American Balanced |
| Asset Allocation |
American Balanced and Asset Allocation Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Balanced and Asset Allocation
The main advantage of trading using opposite American Balanced and Asset Allocation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Balanced position performs unexpectedly, Asset Allocation 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 Asset Allocation will offset losses from the drop in Asset Allocation'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 |
| Asset Allocation vs. Mid Cap Index | Asset Allocation vs. Mid Cap Strategic | Asset Allocation vs. Valic Company I | Asset Allocation vs. Valic Company I |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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