Correlation Between American Funds and Sp 500
Can any of the company-specific risk be diversified away by investing in both American Funds and Sp 500 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 Sp 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Funds Global and Sp 500 Equal, you can compare the effects of market volatilities on American Funds and Sp 500 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 Sp 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Sp 500.
Diversification Opportunities for American Funds and Sp 500
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between American and INDEX is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Global and Sp 500 Equal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp 500 Equal 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 Global are associated (or correlated) with Sp 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp 500 Equal has no effect on the direction of American Funds i.e., American Funds and Sp 500 go up and down completely randomly.
Pair Corralation between American Funds and Sp 500
Assuming the 90 days horizon American Funds is expected to generate 1.61 times less return on investment than Sp 500. But when comparing it to its historical volatility, American Funds Global is 1.16 times less risky than Sp 500. It trades about 0.12 of its potential returns per unit of risk. Sp 500 Equal is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 5,714 in Sp 500 Equal on September 13, 2024 and sell it today you would earn a total of 104.00 from holding Sp 500 Equal or generate 1.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Funds Global vs. Sp 500 Equal
Performance |
| Timeline |
| American Funds Global |
| Sp 500 Equal |
American Funds and Sp 500 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Funds and Sp 500
The main advantage of trading using opposite American Funds and Sp 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Sp 500 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 Sp 500 will offset losses from the drop in Sp 500's long position.| American Funds vs. Putnam Money Market | American Funds vs. Prudential Government Money | American Funds vs. Franklin Government Money | American Funds vs. General Money Market |
| Sp 500 vs. Fa 529 Aggressive | Sp 500 vs. Artisan High Income | Sp 500 vs. Needham Aggressive Growth | Sp 500 vs. Lgm Risk Managed |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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