Correlation Between American Funds and Inflation Protected
Can any of the company-specific risk be diversified away by investing in both American Funds and Inflation Protected 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 Funds and Inflation Protected into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds Inflation and Inflation Protected Bond Fund, you can compare the effects of market volatilities on American Funds and Inflation Protected 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 Funds with a short position of Inflation Protected. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Inflation Protected.
Diversification Opportunities for American Funds and Inflation Protected
-0.05 | Correlation Coefficient |
Good diversification
The 3 months correlation between American and Inflation is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Inflation and Inflation Protected Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Protected and American Funds 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 Funds Inflation are associated (or correlated) with Inflation Protected. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Protected has no effect on the direction of American Funds i.e., American Funds and Inflation Protected go up and down completely randomly.
Pair Corralation between American Funds and Inflation Protected
Assuming the 90 days horizon American Funds is expected to generate 3.17 times less return on investment than Inflation Protected. But when comparing it to its historical volatility, American Funds Inflation is 1.11 times less risky than Inflation Protected. It trades about 0.02 of its potential returns per unit of risk. Inflation Protected Bond Fund is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 899.00 in Inflation Protected Bond Fund on September 12, 2024 and sell it today you would earn a total of 135.00 from holding Inflation Protected Bond Fund or generate 15.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Inflation vs. Inflation Protected Bond Fund
Performance |
| Timeline |
| American Funds Inflation |
| Inflation Protected |
American Funds and Inflation Protected Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Inflation Protected
The main advantage of trading using opposite American Funds and Inflation Protected positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Inflation Protected 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 Inflation Protected will offset losses from the drop in Inflation Protected's long position.The idea behind American Funds Inflation and Inflation Protected Bond Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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