Correlation Between American Funds and Real Return
Can any of the company-specific risk be diversified away by investing in both American Funds and Real Return 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 Real Return 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 Real Return Fund, you can compare the effects of market volatilities on American Funds and Real Return 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 Real Return. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Real Return.
Diversification Opportunities for American Funds and Real Return
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between American and Real is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Inflation and Real Return Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Return Fund 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 Real Return. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Real Return Fund has no effect on the direction of American Funds i.e., American Funds and Real Return go up and down completely randomly.
Pair Corralation between American Funds and Real Return
Assuming the 90 days horizon American Funds Inflation is expected to under-perform the Real Return. But the mutual fund apears to be less risky and, when comparing its historical volatility, American Funds Inflation is 1.31 times less risky than Real Return. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Real Return Fund is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,010 in Real Return Fund on August 31, 2024 and sell it today you would earn a total of 2.00 from holding Real Return Fund or generate 0.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Inflation vs. Real Return Fund
Performance |
| Timeline |
| American Funds Inflation |
| Real Return Fund |
American Funds and Real Return Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Real Return
The main advantage of trading using opposite American Funds and Real Return positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Real Return 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 Real Return will offset losses from the drop in Real Return's long position.| American Funds vs. Vanguard Inflation Protected Securities | American Funds vs. Vanguard Inflation Protected Securities | American Funds vs. American Funds Inflation |
| Real Return vs. Vanguard Inflation Protected Securities | Real Return vs. Vanguard Inflation Protected Securities | Real Return vs. American Funds Inflation | Real Return vs. American Funds 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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