Correlation Between Long Term and American Funds
Can any of the company-specific risk be diversified away by investing in both Long Term and American Funds 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 Long Term and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Long Term and American Funds New, you can compare the effects of market volatilities on Long Term and American Funds 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 Long Term with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long Term and American Funds.
Diversification Opportunities for Long Term and American Funds
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Long and American is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding The Long Term and American Funds New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds New and Long Term 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 The Long Term are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds New has no effect on the direction of Long Term i.e., Long Term and American Funds go up and down completely randomly.
Pair Corralation between Long Term and American Funds
Assuming the 90 days horizon The Long Term is expected to generate 3.31 times more return on investment than American Funds. However, Long Term is 3.31 times more volatile than American Funds New. It trades about 0.16 of its potential returns per unit of risk. American Funds New is currently generating about 0.11 per unit of risk. If you would invest 3,350 in The Long Term on September 12, 2024 and sell it today you would earn a total of 205.00 from holding The Long Term or generate 6.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Long Term vs. American Funds New
Performance |
| Timeline |
| Long Term |
| American Funds New |
Long Term and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Long Term and American Funds
The main advantage of trading using opposite Long Term and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Long Term position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.| Long Term vs. American Funds New | Long Term vs. American Funds New | Long Term vs. New Perspective Fund | Long Term vs. New Perspective Fund |
| American Funds vs. American Funds New | American Funds vs. New Perspective Fund | American Funds vs. New Perspective Fund | American Funds vs. New Perspective Fund |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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